NXP Semiconductors Q3 2026 Earnings Results & Report

NXP Semiconductors EPS Results

• Actual EPS: $4.20
• Consensus EPS: $4.12
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: $3.11
• EPS Beat Rate: 7 of last 8 quarters

NXP Semiconductors Revenue Results

• Actual Revenue: $3.79 billion
• Expected Revenue: $3.76 billion
• Beat/Miss: Beat by +$22.00 million
• YoY Revenue Growth: +19.30%

NXP Semiconductors (NASDAQ:NXPI) is a global semiconductor company that develops technologies for automotive, industrial, communications infrastructure, mobile, and Internet of Things applications. The company provides processing, connectivity, security, sensing, and power-management solutions that help enable connected and automated systems.

Its product portfolio includes microcontrollers and application processors, automotive networking and radar solutions, secure identification and authentication technologies, near-field communication products, radio-frequency power amplifiers, analog and mixed-signal devices, and wireless connectivity solutions. NXP’s semiconductors are used in vehicles, factory and building automation equipment, mobile devices, communication networks, and a range of connected edge products.

NXP was established in 2006 after being spun off from Royal Philips and is headquartered in Eindhoven, the Netherlands. The company serves customers worldwide through operations and sales activities across North America, Europe, Asia, and other international markets. Kurt Sievers has served as NXP’s president and chief executive officer since 2020.

NXP Semiconductors Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q3 results and Q4 outlook: Revenue rose 19% year over year to $3.79 billion, while non-GAAP EPS increased 35% to $4.20. NXP expects Q4 revenue of $3.85 billion and EPS of $4.36 at the midpoint, implying continued double-digit annual growth.
• Positive Sentiment: Structural growth drivers are gaining traction: Automotive and industrial growth drivers increased 30% year over year, supported by software-defined vehicles, electrification, industrial AI, and edge processing. NXP said automotive SDV revenue is above a $1.5 billion annualized rate and remains on track for its $2 billion 2027 target.
• Positive Sentiment: Data center opportunity is expanding: NXP now expects 2026 data center revenue to exceed its prior $500 million forecast and projects the business could surpass $1 billion within a couple of years. Management cited growing customer engagements in control-plane processors, networking, security, and board management.
• Positive Sentiment: Margin expansion and shareholder returns: Q3 non-GAAP operating margin reached 37.1%, and management expects gross margin to reach 60% in 2027 and potentially exceed it in 2028 as manufacturing joint ventures ramp. The board authorized an additional $5 billion in buybacks, bringing total authorization to approximately $6.3 billion.
• Negative Sentiment: Near-term risks remain in mobile and supply constraints: Mobile revenue declined 4% year over year and is expected to fall in the mid-teens percentage range in Q4. Management also cited tight back-end capacity, rising input costs, and increasing customer escalations, although it said pricing actions are currently intended mainly to offset inflation rather than reflect broad-based restocking.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the NXP Third Quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. 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. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Mike Lucarelli, Senior Vice President, Investor Relations. Please go ahead.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Thank you, Lisa, and good afternoon, everyone. Welcome to NXP's Third Quarter earnings call. Leading the call today are Rafael Sotomayor, NXP's President and CEO, and Bill Betz, 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 fourth quarter of 2026. 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.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

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 2026 earnings release, which will be furnished to the SEC on Form 8-K and is available on NXP's website in the investor relations section at nxp.com. I will now turn the call over to Rafael.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Thank you, Mike, and good afternoon. In Q3, we exceeded our outlook across all end markets and every region grew double digits year-over-year. Growth was led by our company-specific growth drivers in automotive and industrial, which grew 30% year-over-year and represent roughly a third of our total revenue, as well as continued strength in data center infrastructure. Revenue was $3.79 billion, up 19% year-over-year, or up 22% excluding the MEMS sensor business. Non-GAAP operating margin was 37%, up 330 basis points, and non-GAAP EPS was $4.20, up 35% year-over-year. These results are translating into strong free cash flow generation, enabling us to invest in the business and return cash to shareholders. To that end, our board has authorized an incremental $5 billion for share repurchases, bringing total authorization to around $6.3 billion. Now, turning to end market performance.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Automotive revenue crossed $2 billion for the first time, up 17% excluding sensors. This growth is driven by content gains led by our SDV portfolio in a flattish unit production environment. SDV revenue in Q3 is running above $1.5 billion annualized and remains well on track to reach our $2 billion 2027 target. We view the transition from domain-based architectures to zonal and centralized compute as a multi-year upgrade cycle that will enable physical AI and autonomous capabilities in the vehicle. These new architectures create a need for system solutions that drive higher content across NXP's portfolio, including additional processing end nodes, connectivity, and power management. This results in 2x-3x higher content per vehicle compared to today's architecture. This evolution is still in its early stages. In 2027, we will begin shipping our next generation SDV processors, including the S32K5 zonal and S32N central compute platforms.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

We are starting to see material proof points of the SDV transition. RV Tech, the joint venture of Volkswagen and Rivian, announced yesterday it has standardized its zonal platform on NXP S32K5 across both companies. This is a clear signal of the leadership of NXP's SDV portfolio and where the industry is heading. Engagements with our new platform continue to expand globally, and we now expect our first S32K5 shipments in China as early as the first quarter of 2027. Software-defined vehicles are one of the first deployments of physical AI, and the opportunity reaches well beyond the car. The same building blocks of central compute, sensing, networking, and secure control are moving into robotics and other intelligent systems at the edge. This quarter, we secure our first S32K5 design win in humanoid robotics with a leading U.S. global technology company. Now, moving to industrial IoT.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Revenue was $802 million, up 39% year-over-year. The industrial portion of this end market grew nearly 50%, led by data center, factory automation, and healthcare, and now represents about 70% of industrial IoT. As we mentioned in our Q2 call, AI-enabled processors will represent approximately 15% of industrial IoT processor revenue in 2026, more than doubling from last year. Given market adoption of intelligent systems, we expect growth to continue in 2027. Ara, our discrete NPU, is a key component of our AI portfolio. It continues to gain traction across industrial automation and automotive AI applications, and we expect to be in volume production in 2028. Now, let me give you an update on our data center business. Given the strength we're seeing year-to-date, we now expect our revenue to exceed the $500 million outlook provided earlier this year.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Given the new products we're developing, combined with expanding customer engagements, we now expect this business to be over a $1 billion in a couple of years. Going to communication infrastructure and other, revenue was $503 million, up 54% year-over-year, driven by data center and secure cards. Lastly, mobile revenue was $411 million, down 4% year-over-year. Turning to our Q4 outlook. We're guiding revenue to $3.85 billion, up 2% sequentially, and up 15% year-over-year, or 18% excluding sensors. This would represent our fourth consecutive quarter of double-digit annual growth. At the midpoint, we expect the following trends in our business during Q4. Automotive is expected to be up in the low double-digit percent range year-over-year, and up low double-digit sequentially. Adjusted for the sale of the MEMS sensor business, our guidance implies a high teens percentage growth year-over-year.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Industrial and IoT is expected to be up in high 20% range year-over-year, and up in the low single-digit range sequentially. Mobile is expected to be down in the mid-teens percent range year-over-year, and up slightly on a sequential basis. Finally, communication infrastructure and other is expected to be up over 50% range year-over-year, and up low single digits sequentially. Now, I'd like to pass the call to Bill for a review of our financial performance.

[Bill Betz, CFO at NXP Semiconductors]

Thank you, Rafael, and good afternoon to everyone on today's call. As Rafael has already covered the revenue drivers, I will turn to the financial highlights. Q3 was another strong quarter with record revenue, operating margin, and non-GAAP EPS. Revenue grew 19% year-over-year, and 8% sequentially to $3.79 billion. The growth was led by our company specific growth drivers across software-defined vehicles, electrification, connectivity, radar, and industrial edge processing, as well as continued momentum in our emerging data center business. Non-GAAP gross margin was 58.6%, up 160 basis points year-on-year. Our gross margin performance reflects improved factory utilization and solid fall-through on higher revenues. Non-GAAP operating expenses were $810 million or 21.4% of revenue, reflecting strong operating leverage. This led to a non-GAAP operating margin of 37.1%, up 330 basis points year-on-year. Below the line, non-GAAP interest expense was $85 million.

[Bill Betz, CFO at NXP Semiconductors]

Tax rate was steady at 18%. Non-controlling interest was $15 million, and results from our joint venture equity accounted investees were a $4 million loss. This resulted in non-GAAP earnings per share of $4.20, increasing 35% year-over-year, or about 2x our revenue growth rate. Turning now to the balance sheet, cash flow, and capital returns. Our balance sheet remains strong, providing flexibility to invest in our strategic growth priorities, advance our hybrid manufacturing model, and return capital to shareholders. We ended Q3 with $3.94 billion of cash and $10.98 billion of debt, resulting in a net leverage ratio of 1.3x. Days of inventory declined to 148 days from 156 days in Q2, including approximately 13 days of pre-built inventory related to our planned front-end factory consolidations. We expect to have approximately 15 days of pre-built inventory at the end of 2026.

[Bill Betz, CFO at NXP Semiconductors]

For the quarter, operating cash flow was strong at $1.26 billion, and net CapEx was $50 million, resulting in free cash flow of $1.21 billion or approximately 32% of revenue. During Q3, we invested $218 million between equity and access fees in VSMC and ESMC. A detailed breakdown of our joint venture investments is available in our historical financial model on our Investor Relations website. We expect to be over 75% complete with our JV investments by year-end. On a trailing 12-month basis, free cash flow was approximately $3.5 billion, or 25% of revenue, in line with our long-term target. Over that same period, we returned $1.7 billion to shareholders through dividends and share repurchases. Most recently, shareholder returns have been below our long-term target as we prioritize deleveraging, strategic acquisitions, and investments in our manufacturing joint ventures to support future growth and gross margin expansion.

[Bill Betz, CFO at NXP Semiconductors]

Moving forward, we plan to accelerate our buyback activity in Q4 and 2027. Consistent with that commitment, the board authorized a new $5 billion share repurchase program, bringing total authorization to $6.3 billion, representing around 10% of our current market capitalization. Overall, we remain committed to returning 100% of our excess free cash flow to shareholders over the long term. Turning to our expectations for Q4, we expect revenue of $3.85 billion, ± $100 million, which is up 15% year-on-year or up 18% adjusted for the sale of our MEMS sensor business, and up 2% sequentially. We expect non-GAAP gross margin of 59%, ± 50 basis points, driven by higher revenue and manufacturing utilizations. We expect operating expenses of $830 million, ± $10 million. The increase sequentially is primarily driven by our new product tapeouts to support our trusted physical AI strategy.

[Bill Betz, CFO at NXP Semiconductors]

At the midpoint, this will result in a non-GAAP operating margin of 37.5%. Below the line, we expect non-GAAP financial expense to be $79 million, and our non-GAAP tax rate to be approximately 17.5%. We expect non-controlling interest to be $14 million and $5 million of losses in our joint venture equity accounted investees. This implies Q4 non-GAAP earnings per share of $4.36 at the midpoint, an increase of 30% year-over-year, demonstrating continued earnings power. Turning to Q4 uses of cash, we expect capital expenditures to be approximately 3% of revenue and equity payments to VSMC of $86 million and ESMC of $60 million. Looking ahead into 2027 and for your modeling considerations, we will continue to drive double-digit growth in revenue. We plan to expand our gross margins to 60% during 2027.

[Bill Betz, CFO at NXP Semiconductors]

We expect operating expenses for the first half to be around 23% of revenue, driven by new product introductions, and second half to be below 23%. Assume a non-GAAP annual effective tax rate of 17.5%, we now expect joint venture investee losses to be around $80 million for the full year and suggest using about a $10 million loss for Q1 and a $20 million loss for Q2. Capital expenditures to be around 5% as we plan to bring on more back-end capacity online in 2027 and build out our new assembly and test facility in Malaysia to be ready for production in 2028. Lastly, we will continue to generate healthy levels of cash, and we plan to accelerate capital returns to our owners. Next, to better understand our business, we plan to realign our end market revenues beginning in 2027.

[Bill Betz, CFO at NXP Semiconductors]

In addition, we plan to host our Investor Day on March 3rd in Boston, where we will update our strategic and long-term financial model. Finally, I'd like to thank Jeff Palmer, who has served us as the Head of Investor Relations for the past 16 years, and thank him for his many contributions to NXP. I would like to now turn the call back to the Operator for your questions.

[Operator]

Thank you. If you would like to ask a question, please press star one on your telephone. You will hear that automated message advising you that your hand has been raised. If you would like to remove yourself from the queue, please press star one again. We also ask that you please wait for your name and company to be announced before proceeding with your question. Please keep your questions to one question and one follow-up. One moment while we compile the Q&A roster. Our first question will be coming from the line of Jim Schneider of Goldman Sachs. Please go ahead.

[Jim Schneider, Analyst at Goldman Sachs]

Good afternoon. Thanks for taking my question. I was wondering if you would maybe talk a little bit about the customer behavior you are seeing across your OEM customers specifically. Are you seeing signs of them restocking at all in a more aggressive way than they had in past quarters? Maybe give us a sense of the customer commentary in terms of what is happening with lead times and how they are responding to that.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Yeah. Jim, thank you for the question. I assume this is an auto question. In the context of auto, no, we are not seeing anything noticeable that would suggest a broad-based restocking. From a visibility perspective, I think visibility has greatly improved, so lead times have extended, but also has resulted in better visibility. I would say the other trend in the market in automotive is OEMs are getting more involved in providing that guidance directly to companies like us. There is a lot more intimacy from a customer relationship perspective with respect to their needs throughout the year. So I feel like we have good visibility in what that supply is going to be required and the type of products we are going to need to deploy.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Do you have a follow-up, Jim?

[Jim Schneider, Analyst at Goldman Sachs]

Thank you. Yes, and then as a follow-up, I just wanted to ask, it is very helpful to see the solid guidance for 2027. Can you maybe give us a sense about, by end market, some of the places where you have greatest underlying confidence in outperforming that overall double-digit outlook you provided and other areas where you see there is a little bit more uncertainty? Thank you.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Sure. I think what is working in 2026, that will continue in 2027. Your question is what's driving our confidence in the growth in double digits in 2027 and continues to be the areas that we're focused on. SDV adoption continues. As a matter of fact, it's just barely starting, and we see several ramps, especially in the second half of 2027. We have very important ramps in our SDV portfolio. The same thing goes with industrial IoT. The adoption of AI continues to add content gains in industrial IoT, and it's quite strong. The deployment that we're barely starting on the control plane and data center continues to play out for us.

[Jim Schneider, Analyst at Goldman Sachs]

Thank you.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Thank you, Jim.

[Operator]

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

[Thomas O'Malley, Analyst at Barclays]

Hey, guys. Thanks for taking my question. This is for Bill Betz. When I look at December guidance, I think you guys are guiding to 59% gross margins. It is a pretty big step-up in incrementals from September. I think it is 85% quarter-over-quarter, close to 70% year-over-year. Obviously, volume is some component of that, but maybe walk through some other things that are driving that, just as that is a big step-up from what you have seen over the last three, four quarters.

[Bill Betz, CFO at NXP Semiconductors]

Absolutely, Thomas. A couple points on gross margin. First, they are performing to our expectations, and as we shared, they have continued to expand into Q4. I would say our gross margin improvements are very structural in nature. They are driven by a combination of the higher revenues, the higher utilization. As I mentioned, we are running, last I gave guidance, running in the mid-80s%. They are running in the mid-80s% now.

[Bill Betz, CFO at NXP Semiconductors]

We expect them to continue in Q4 in the mid-80s%, and we actually, in 2027, expect them to run in the high 80s%. Clearly, product mix plays a role, and then obviously improved operational efficiencies. I would also say our gross margins have nothing to do with the price increases that we are seeing at the moment, because all we are doing with the price increases is offsetting the higher inflationary costs that we are passing on to our customers.

[Bill Betz, CFO at NXP Semiconductors]

I think overall, we expect gross margins to continue to expand, achieving that 60% during 2027. Furthermore, I think they will expand above 60% in 2028 with the ramp of our VSMC joint venture that we shared about in the past.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Do you have a follow-up, Tom?

[Thomas O'Malley, Analyst at Barclays]

I do. Thanks, Mike. Just on seasonality, I am sure everyone will have slightly different numbers, but by my numbers, auto was a little ahead of seasonal in September, and then your guide is kind of low single digits sequentially. My December traditional seasonality is close to mid to high single digits. Any reason why the delta there? Is it because of some of the stronger quarters that you have got in June, September? Are you calling out anything in particular that is worth noting? Thank you.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Hey, Tom. I think you are talking about auto specifically. Is that correct? If that is so,

[Thomas O'Malley, Analyst at Barclays]

Auto specifically into December.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Yeah. So you are right, auto has been quite strong this year and above seasonal, I would say almost every quarter this year. Looking at 4Q, I am not sure. There is a lot of range on seasonality, a lot of different years people use, three, five, seven, 10 years. But I think it is seasonal in auto is probably a flat to up slightly. So I think that 2% growth is above seasonal. That is how I would view that. So I would say strong trends continue in auto. So that is a straightforward answer on the automotive market specifically. Go to the next question, please.

[Operator]

One moment. Our next question is going to be coming from the line of Joshua Buchalter of TD Cowen. Please go ahead.

[Joshua Buchalter, Analyst at TD Cowen]

Hey, guys. Thank you for taking my question. Maybe following up on Tom's one, any help you can give us on what you're seeing in the overall pricing environment now? Then as we look into 2027, I know in some prior years there's been sort of a step down in gross margins due to annual pricing resetting. Should we be expecting a step down in 1Q again, looking into 2027 this year? Thank you.

[Bill Betz, CFO at NXP Semiconductors]

Yeah. Let me start off with the pricing. Going into 2026, we expected a low single-digit price decline. Now as we plan to exit 2026, we expect pricing to be neutral for the year for 2026. Clearly for 2027, we continue to see higher input costs in many areas, and unfortunately, we will pass those to our customers to ensure our gross margins are not impacted. I think we expect revenue to also be supported by the mix of our products, as Rafael shared, especially in the SDV portfolio with our new solutions to drive higher average selling prices in 2027 because of the portfolio where SDVs carry two or three times more value than our traditional portfolio. But in the short term, I would say pricing is doing what we expected. We're passing along. Neutral, I'd say Q3, maybe +1%.

[Bill Betz, CFO at NXP Semiconductors]

1% was pricing in Q3, another 1% in Q4, so it keeps it neutral for the whole year for 2026.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Josh, this is Rafael. Let me add a high-level perspective here, and put aside the variable of input cost for a second here. The way we see this is we see a structural shift in the industry with respect to pricing. Unlike the past decade where annual price erosion was coming, today, I think semiconductors account for a larger share of the value in the innovation of the systems. I think that creates opportunities for much better value capture. This has nothing to do with input costs. It is just a shift in value with respect to semiconductors and ultimately on the systems. Sure, competitive pressures will always remain, but I think what we expect is the historical pattern of annual price erosion to actually moderate over time. I think over time, I think it is going to make pricing less of a headwind year-over-year.

[Joshua Buchalter, Analyst at TD Cowen]

Good. Thank you for all the color there. To follow up, you mentioned that you are not seeing any signs of widespread restocking. It seems like there has been pretty mixed commentary from the industry over the last couple of quarters about whether restocking is going on or not. How much of, I guess, what you are seeing is proactive conservatism on your part, similar to how you handled the previous cycle, or is there anything different about your portfolio or products or exposure that would give you a different cadence of restocking than some of your peers that are saying that they are seeing it already? Thank you.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Josh, we are not seeing it. I can only tell you what we are seeing. We are just not seeing it. The fact that our core products are at the core of the software-defined vehicle, I do not see how if there was restocking, we would see it. What it has is been conversations by some OEMs to be able to actually have some safety stock put in place given the tightness in the supply right now, but it is yet to occur. So I acknowledge some of the headlines by some Tier 1 OEMs, but we have not seen the restocking. Given the fact that our products are core to the core function of the vehicle, if there were any restocking, we would see it.

[Bill Betz, CFO at NXP Semiconductors]

Yeah, maybe just to add, remember for automotive distribution, we service that by about 40%, and we have a really good control on that.

[Joshua Buchalter, Analyst at TD Cowen]

Thank you both. Appreciate it.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Next question, please.

[Operator]

One moment for the next question, please. The next question is coming from the line of Blayne Curtis of Jefferies. Your line is open.

[Blayne Curtis, Analyst at Jefferies]

Hey, guys. Thanks for taking my questions. I just want to start on the auto segment. Obviously, you have a lot of structural drivers with SDV. I was curious on the electrification side, what are you seeing? I think [Tekton] saw an uptick. Curious with gas prices. Maybe start with that.

[Bill Betz, CFO at NXP Semiconductors]

Yeah, this is Bill. Hey, Blayne. We are seeing strength across all our company-specific growth drivers in automotive. Last year, electrification was going through inventory digestion, and our new products were delayed a bit. But those are performing quite well this year and catching up and I would say growing above that growth rate that we provided during Investor Day, specifically in electrification. If I step back and look at total SAAR, total SAAR is slightly down, but the penetration of xEVs, including hybrids, you combine that's actually growing. I think total production this year's forecast is going to be about 47.5% roughly of xEVs, and next year it's expected to be across the 50% mark to about 55%. So the 47% this year compared to last year was 41%, so growing 12%. The forecast is to grow another 15% of that penetration rate.

[Bill Betz, CFO at NXP Semiconductors]

From a macro standpoint, we do see xEVs continuing to grow globally. As you know, it carries 2x-3x more semi content in the industry compared to a regular ICE vehicle.

[Blayne Curtis, Analyst at Jefferies]

Thanks. Then Bill, don't kill me for this, but I wanted to ask you any early thoughts on March, either by segment or overall.

[Bill Betz, CFO at NXP Semiconductors]

Early thoughts for March? Oh, for the first quarter, you're saying?

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Yeah.

[Bill Betz, CFO at NXP Semiconductors]

I think I missed that. Sure, yeah. I knew someone would ask the question, Blayne.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Sorry.

[Bill Betz, CFO at NXP Semiconductors]

It would be in the back, but it was you, Blayne. You were ahead of the queue. Again, this is not guidance. There is a wide range on these expectations. I will give my normal caveats there. But typically, 1Q for us is down about mid-single digits. What drives that mid-single digit sequential decline is mobile down mid-teens sequentially. Then automotive, industrial IoT, and comm infra is down low to mid-single digits, call it 3%, 4%, 5% sequentially. Again, this is not guidance. This is just overall trends over the past 5-10 years in our business.

[Bill Betz, CFO at NXP Semiconductors]

Thanks, Mike. Great job.

[Operator]

Thank you. One moment for the next question. Our next question is coming from the line of Harlan Sur of JPMorgan. Please go ahead.

[Harlan Sur, Analyst at JPMorgan]

Yeah, good afternoon. Thanks for taking my question. Thanks for the near-term trends you are seeing in your auto franchise. Obviously, you guys have many other company-specific drivers in your other segments that are firing, edge AI, physical AI, data center, to name a few. If you look across your overall business, was book-to-bill greater than one in Q3? If so, did backlog grow across all your segments? Did overall customer escalations continue to rise just given the tight supply environment?

[Bill Betz, CFO at NXP Semiconductors]

Yeah, let me take that question. I would just say all signals continue to improve from 90 days ago. So the book-to-bill remains well above one across all end markets and regions. Our backlog continues to grow in dollars and extend further into 2027. Lead times, I would say, continue to extend. Just to give you a feel, I would say 80% of our lead times are above the 16 weeks, compared to a year ago when it was only 25%. Customer escalations continue to increase, and they are up sizable quarter-over-quarter.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Your follow-up, Harlan?

[Harlan Sur, Analyst at JPMorgan]

I appreciate. Yeah. On the supply side, on the 300 mm expansion initiatives, primarily driven through your ESMC and VSMC 300 mm JVs, I believe VSMC, I think that is targeted for analog power mixed signal products. I think VSMC just started risk production/qualification, with production shipments targeted for the first half of next year. If I recall, ESMC for your MCU and embedded products, those were targeted for production end of next year. Can you guys just give us an update on these initiatives? In a tight supply environment, it seems like the 300 mm programs are layering in just right at the perfect time.

[Bill Betz, CFO at NXP Semiconductors]

Yeah, absolutely. As you all know, it's happening both in the front end and the back end. Front end recently we just celebrate the opening of VSMC, and that is ahead of schedule. The first thing that's going to ramp is actually our partner side, which is ramping the interposers. In our side, we're in the process of qualifying our first set of technologies, which we will start that material in the first half and expect out in the second half. So we do see some outs coming ahead of schedule, but really the big bulk, where we see a lot of volume pick-up, is in 2028 for us. Obviously, also helping to expand our gross margins. As you know, you get the two benefits from that. You get the benefit from moving-

[Harlan Sur, Analyst at JPMorgan]

That's right.

[Bill Betz, CFO at NXP Semiconductors]

200 mm-300 mm, but you also get a benefit of not paying that margin stacking like you buy from an outside foundry partner. Relate to the back end, as I mentioned in my prepared remarks, we are increasing our CapEx to about 5% versus, I would say, we've been spending around 2% this year. There's two factors there. There's one is we are adding capacity into Q1 and Q2 to support our revenue in the back end as we have a little space, and we're doing that. So that'll help drive the double-digit growth. But more importantly, we're building out and getting production ready of a whole new facility in KL that we broke ground in August, and that'll be up and running in the beginning of 2028.

[Bill Betz, CFO at NXP Semiconductors]

That will also service a lot of revenue and also help support in our gross margin expansion as well.

[Harlan Sur, Analyst at JPMorgan]

Great color. Thanks, Bill.

[Operator]

Thank you. One moment for the next question. Our next question is coming from the line of Matthew Prisco of Cantor. Please go ahead.

[Matthew Prisco, Analyst at Cantor]

Hey, guys. Thanks for taking the questions. First on the SDV side, with these increased engagements, can you give more color on what's driving those wins today, and how do we think about the ramp timing and potential inflection, given those wins? Is that more of a 2027, 2028 story than any ancillary opportunities you're seeing? That Volkswagen partnership seems centered on the MCU side, but obviously you're selling these systems with other components as well. So any opportunities beyond that core? Thanks.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Yes. What is driving some of the design win is the massive adoption that we have been discussing about software-defined vehicles, right? The whole concept is just revolutionary. It is transforming the way a vehicle is made. The two architectures is the zonal architecture and the central compute architecture, and I am simplifying it a little bit. The Volkswagen press announcement was surrounded about their zonal architecture, which uses our high-performance S32K5. Having said that, we also have plenty of engagements in our S32N central compute architecture as well. I would say that we already have design wins in North America. We have a recently design win in South Pacific and Asia. We have different several POCs in China and in Europe. The early ramps of the central compute S32N are likely to happen at late 2027.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

The full volume ramps for both the K5 and the S32N, we should expect that in 2028. So we are quite bullish of what is happening there because it is not only content gain that is happening through SDV, but this design wins, and as we provide more and more transparency between now and the next year, it will show that this content gain compounds with share gain.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

You have follow-up?

[Matthew Prisco, Analyst at Cantor]

Helpful. Yeah. Then maybe just on physical AI quick. Last call, I think you started talking about a pipeline you were seeing there and talked about your system-level approach. So maybe update on how you are thinking about that physical AI opportunity, kind of sizing that into the future, maybe a percentage of processor revenues as you think about 2027 and beyond, like how quickly this market can grow. Thanks.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Well, that is the core of what we're discussing, the physical AI. AI is the main driver for content gain in industrial and IoT. I think we provided last call that AI-enabled processors without the discrete NPU was approximating 15% of total processor revenue, doubling from a year ago. We expect that to continue to go very strongly into 2027. The NPU, the discrete NPU, we're now getting significant traction with different POCs, both in industrial and IoT and automotive, and we now expect early production in 2028.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Thank you, Matt. Go ahead and next caller, please.

[Operator]

Thank you. One moment, please. Our next question is coming from the line of Vivek Arya of Bank of America Securities. Please go ahead.

[Vivek Arya, Analyst at Bank of America Securities]

Thanks for taking my question. Rafael, one of the pushbacks against NXP has been that the company doesn't have enough exposure to the data center. I think you mentioned this year's target of $500 million plus, that's like low single digit. Even the $1 billion would be less than 10%, versus many of your peers that have anywhere between 10%-20% data center exposure. The question is data center not an imperative for NXP? If it is, then do you think you can go after it organically or, because you're suggesting that the use of cash will be more towards buybacks, rather than something else. Just strategically, how do you think about the data center business, and how important is it, and how big of an exposure should NXP have for that end market?

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Vivek, thanks for the question. Maybe summarize it a little bit, right? Today, we provided an outlook that said data center was going to be about $500 million. We just said that we are going to probably close a year exceeding that number. Now with the new products that we are developing and the engagements that we have, we now expect that revenue to go to $1 billion in 2028. Now, the thesis, and the answer to the question, the thesis of our playbook and data plane is that, sorry, in the control plane is if the data plane is going up in performance, therefore the control plane needs also more performance. That means not just performance and processing, but more networking, more security, more safety. That is where the core competency of NXP is. Because there is zero tolerance for downtime, right?

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Reliable industrial-grade control processes are required. The way you got to look at it is our portfolio is top-of-rack switches, right? That is starting to actually kind of roll. Then controllers and processors for board management, whether they are secure elements, they are processors and microcontrollers, and also interfaces. We are developing right now more and more products to be able to expand this out. We are using the core competence of NXP to address the control plane and data center. I think that the growth that we are going to see between $500 million and $1 billion in the next two years with actually new ramps in products is quite impressive.

[Bill Betz, CFO at NXP Semiconductors]

Vivek, I would not read into the buyback of saying we are not investing in data centers. We are generating, as you can see, a lot of cash, and we are going to invest in the data center, and you will probably hear more about that during our Investor Day in March.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Vivek, I will add one thing. I think you should look at it, and I think it is a very negative question you asked, in my opinion. If you look at it, I think data is going to become another leg of the stool of our growth story. We have auto as a core franchise. We talk about SDV, and that is winning. That is fantastic. We have data centers, a new opportunity, emerging opportunity. Rafael outlined some things there that we are doing to drive that growth faster in the future. Then you have the industrial and IoT market and physical AI as another opportunity. So we really have three legs to this growth stool for NXP. We are not hooked on one thing. We have multiple growth drivers, which is a net positive for the company.

[Vivek Arya, Analyst at Bank of America Securities]

Yeah. For my follow-up, on your comms infrastructure and other, what is the right way to think about growth there as we look into next year? Because this year it was, I think, the fastest-growing segment or has been the fastest-growing segment after declining for the last two years. What are kind of the puts and takes, Rafael, as we look at that specific segment for next year? Thank you.

[Bill Betz, CFO at NXP Semiconductors]

Yeah, let me take you and just remind you how that segment is broken up. Clearly, as I mentioned in my prepared remarks, we are going to realign the segment starting in 2027, so we are more transparent in how to understand this business and the right components. At 2025, exiting 2025, roughly 50% was secure card business, 25% was DN, digital networking, and 25% was RF power. As we look at the end of 2026, obviously, and we shared this, is that the data center or half of it is coming from DN. So expect the comms and infra for DN to be above 30%. Then we've exited next generation RF power type of business, and expect that to be below 20% as we exit 2026. I think what you'll see, that continued trend, along with nice growth continuing in our secure card business.

[Bill Betz, CFO at NXP Semiconductors]

But we're going to break that out and make it much more transparent in the future in our Q4 earnings, when we release.

[Mike Lucarelli, SVP of Investor Relations at NXP Semiconductors]

Thank you, Betz. Can we go to our last question, please?

[Operator]

Thank you. One moment, please. The next question will be coming from the line of François Bouvignies of UBS. Please go ahead.

[François Bouvignies, Analyst at UBS]

Thank you very much. I have two quick questions, maybe a follow-up of the data center part. You mentioned $1 billion for 2028 from the $500 million this year. If we look at your peers, most of them are looking at doubling their revenues into next year already. When you look at the gigawatts additions in different data, you can see that it's going to double in 2027, maybe potentially versus 2026. All the data suggests that the data center market should double almost next year already. I was just wondering for your $1 billion on 2028, that would suggest a slower growth in 2027. Is it you being conservative here, or can you reach $1 billion as early as next year? Or should we be aware about any drag into next year?

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

François, I think the first thing we look at our data center business is the type of products that we are deploying. We're not in discretes, we're not power. We are in the control plane. Anything that is an MCU, a microprocessor in the rack, we consider that our market. We started this business almost this year, so right now the growth relies on product ramps. The growth relies on acceptance and design wins, and also relies on customers deploying software into our products. It's a different type of portfolio. I believe that it's even more stickier than some of the products and some of the companies that you're mentioning. So we feel quite excited about the ramp of our business in data centers because these are processors, these are core competencies that NXP has in networking on security and in processors.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

I think this is going to be something that NXP is going to do quite well.

[François Bouvignies, Analyst at UBS]

Great. Thank you, Rafael. My follow-up would be on the pricing. You mentioned, Bill Betz, input cost as a driver of pricing. Rafael Sotomayor, you mentioned the mix as well, impact that will impact pricing into next year. One other area of pricing could be the supply-demand environment, and many people are starting to talk about the tightness and that could lead to a COVID-like environment. When I look at the utilization rate of your peers, Renesas at 60%, TI has new fabs ramping up. Infineon has a new fab ramping up. You have a new fab ramping up, and you didn't mention the tightness pricing. Is it fair to say that it's not as tight as people think, maybe? You have a lot of capacity coming, maybe it's a timing issue, it's a lead times issue, but it's temporary, not really fundamental like COVID was.

[François Bouvignies, Analyst at UBS]

Is that fair to say?

[Bill Betz, CFO at NXP Semiconductors]

Yeah. Let me take that question, François Bouvignies. Obviously, it's very well known that the back-end capacity today is very tight. We do see into the future that the front end gets tight and the folks that are having capacity come online, like ourselves, like some of the others, will help that obviously. But we do see capacity, and that's the next phase of any supply-demand imbalance. We see that happening sometime next year. But we're very fortunate of the investments that we have placed, both in the back-end and the front-end, that we'll be able to service it. Right now, the pricing is only related to inflationary costs. Could there be pricing related to demand and supply imbalances, where unlike COVID like we saw? Absolutely, but we'll wait and see how that plays out.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

François Bouvignies, the demand environment is very different, right? You mentioned COVID, but the demand environment that is happening now is real. It's driven by transformation. SDV is transformation, physical AI transformation, data CapEx investment transformation. It's a much different environment, and I think that the demand is going to fuel value creation, value capture, and potentially pricing power.

[François Bouvignies, Analyst at UBS]

Great. Thank you very much.

[Operator]

Thank you. That does conclude today's Q&A session. I would like to turn the call over to Rafael Sotomayor for closing remarks. Please go ahead.

[Rafael Sotomayor, President and CEO at NXP Semiconductors]

Thank you everyone. I want to leave you with three takeaways. First, our growth is structural. Software-defined vehicles, the intelligent industrial edge, and data center are multi-year drivers, and wins like RV Tech show we are positioned for the next leg of growth. Second, this growth is broad-based with every region growing. In automotive, industrial IoT, and comms and infrastructure all growing double digits year-over-year. Last, our growth results in robust free cash flow, enabling us to invest in the business and return cash to shareholders. As disclosed today, we have a new $5 billion repurchase authorization, positioning us to accelerate our buybacks beginning in Q4. Thank you all for joining us today.

[Operator]

Thank you for joining us today. You may now disconnect. This concludes today's program.

Participants

Executives

• Mike Lucarelli, SVP of Investor Relations
• Rafael Sotomayor, President and CEO
• Bill Betz, CFO

Analysts

• Jim Schneider, Analyst at Goldman Sachs
• Thomas O'Malley, Analyst at Barclays
• Joshua Buchalter, Analyst at TD Cowen
• Blayne Curtis, Analyst at Jefferies
• Harlan Sur, Analyst at JPMorgan
• Matthew Prisco, Analyst at Cantor
• Vivek Arya, Analyst at Bank of America Securities
• François Bouvignies, Analyst at UBS