Kurt Sievers
President and Chief Executive Officer at NXP Semiconductors
Yeah. Thanks very much, Jeff, and good morning, everyone. We appreciate you joining our call this morning. I will review our quarter three results and then discuss our guidance for quarter four. Overall, our quarter three results were better than the midpoint of our guidance with the mobile end markets stronger than planned as a result of improved supply. At the same time, the trends in the Auto, Industrial & IoT and Communication Infrastructure markets were all in line with our guidance. Taken together, NXP delivered quarter three revenue of $2.86 billion, an increase of 26% year-on-year and $11 million above the midpoint of our guidance range. These are very good results given the constrained supply position we knew we would face entering the quarter. And we continue to view our channel and on-hand inventory metrics below our long-term targets. We exited quarter three with our distribution channel supply metric at 1.6 months, almost the full months lower than our long-term target and we expect this to be the situation in quarter four again as well.
Our non-GAAP operating margin in quarter three was a strong 33.5%, which is 770 basis points better than the year ago period and 50 basis points above the midpoint of our guidance. Operating profit dollars were $19 million better than guidance, driven by higher revenue and lower spend.
Now, let me turn to the specific trends in our focus end markets. Starting with Automotive, quarter three revenue was $1.46 billion, 51% up versus the year ago period and in line with our expectations. In Industrial & IoT, quarter three revenue was $607 million, up 18% versus the year ago period and again in line with our expectations. In Mobile, quarter three revenue was $345 million, up about 2% versus the year ago period and above our expectations. Lastly, in Communication Infrastructure and Other, quarter three revenue was $454 million, about flat versus the year ago period and in line with our expectations.
With this, let me move straight to our outlook for quarter four. We expect the midpoint of quarter four revenue to be $3 billion, up 20% versus the fourth quarter of 2020 within the range of up 17% to up 23% year-on-year. From a sequential perspective, this is up 5% at the midpoint versus the prior quarter. And we again anticipate demand outstripping available supply in our quarter four outlook. At the midpoint of this range, we anticipate the following trends in our business. Automotive is expected to be up in the high 20% range year-on-year and up in the mid-single-digit range versus quarter three 2021. Industrial & IoT is expected to be up in the high 20% range year-on-year and up in the mid-single-digit range versus quarter three 2021. Mobile is expected to be down in the mid-teens range year-on-year and up in the low-single-digit range versus quarter three 2021. And finally, Communication Infrastructure and other is expected to be up in the high-teens range versus the same period a year ago and up in the low-single-digit range versus quarter three 2021.
Over the course of the last few quarters, investors continue to ask how to reconcile the revenue performance of NXP's Automotive business with that of the global vehicle production numbers as they are reported by IHS. Specifically, NXP's Automotive segment revenue is expected to be up over 40% in 2021. Against this, the auto OEMs continue to struggle to match supply to strong consumer demand with the auto industry likely not able to meaningfully grow unit production versus 2020.
Now, let me make a few observations which may help you understand this divergence. First, the auto supply chain is very extended and complex with multiple points of product transformation across the globe. This extended supply chain needs to coordinate the timing and delivery of up to 30,000 parts and up to 1,500 different semiconductors from hundreds of suppliers to build just one single car. During normal periods, from the time at which NXP ships the finished component to when the final assembly is fitted into a finished car, it takes up to six months, and this is on top of the moment semiconductor manufacturing cycle times of three to six months. At each step of the transformation thousands of parts move through a complex global network of suppliers. For the process to work efficiently it is essential that all of the components needed to complete a car are available exactly where and when they are required. Now, we believe the extended auto supply chain significantly depleted on-hand inventory of all types of products, including semiconductors already by the beginning in the second half of 2018 and continuing through 2019 and most of 2020. That depletion was a result of global car production declining 6% in 2019 and another 16% in 2020, while NXP's auto business, despite content increases, declined by 7% into 2019 and by another 9% into 2020.
Now, let me illustrate the impact by using the NXP distribution channel as a proxy for overall auto supply demand trends and how we have been directly affected. We consistently monitor and measure all component movements in inventory data at our distribution partners at the end market level. Throughout 2021 these metrics for Automotive has been at record low levels with on-hand inventory being above the one month below our long-term target of 2.5 months with demand in the intermediate term being consistently greater than our ability to rebuild inventory back to normalized levels.
In our and my personal daily discussions with our customers throughout the auto supply chain, we hear the consistent message that they want significantly more product. And in some cases, Tier 1s are struggling to assemble tool kits and in other cases, the OEMs choose to build partially completed cars or hold their production lines altogether. For NXP, lead times for about 75% of our automotive products continue to be above 52 weeks. Against this backdrop, our customers are placing NCNR orders to assure long-term supply. We in turn are making long-term supply commitments to our supplier partners.
In summary, we think the automotive supply-demand equation will continue to be out of balance through 2022. In addition, as a learning out of the current material shortage situation, and in order to mitigate the impacts the auto OEMs are experiencing today, our Tier 1 partners explicitly demand that more supply and inventory will be needed in the extended supply chain, which we believe cannot be broadly achieved before 2023.
Now, with this currently dysfunctional supply chain as a backdrop, there are very clear and very positive trends that have simultaneously increased the demand for auto semiconductors industry-wide as a consequence of content growth. We have seen multiple OEMs prioritize to production of premium vehicles, which require upwards of twice the semiconductor content from NXP and others. And another clear and emerging secular content driver for the auto semiconductor markets is the fast acceleration of full electric and hybrid electric vehicles, which combined have moved from 8% of global production in 2019 to about 20% of production in 2021. This is very impactful since the average semiconductor content in an xEV is about $900, which is roughly 2 times that of an equivalent ICE vehicle. These trends have resulted in industry-wide content per vehicle increasing at 10% per year over the last three years. And on top of all of this, NXP is consistently gaining share in our focused growth areas and increasing content. These content gains includes 77 gigahertz radar safety systems, multiple electrification system opportunities beyond just battery management and new domain and zonal processing, as well as others.
Now, for NXP, it's of course, not just automotive driving our performance, within the Industrial and IoT market, we see our ability to provide complete turnkey connected edge processing solutions consisting of processes, connectivity, security and analog, all leading to increased customer traction. These are all just a few examples that underpin our confidence in our Company-specific growth. As Jeff mentioned earlier, we plan to go into much greater detail at our Investor Day on November 11 next week in New York.
In summary, we continue to execute very well in a strong demand environment notwithstanding the industry-wide supply challenges. From a Company-specific perspective, NXP is experiencing very positive customer traction of our newest products and solutions. Putting it altogether, we are highly confident that the Company-specific drivers within our strategic end markets will continue to build also beyond Q4 into Q1, as well as over the intermediate term through 2022.
Now, before we move to the financial details of the quarter, I'd like to make a few remarks in the context of our recent announcement of Bill Betz, as our new CFO. I have personally worked with Bill as a business partner and one of Peter Kelly's key finance leaders for over eight years. Bill brings both a strong track record and career in the semiconductor industry, as well as truly intimate knowledge of NXP and consistency to his new role. I personally drove the evaluation and interview process in the viewing of wide number of external candidates, as well as Bill. And I concluded Bill is the right person to lead our NXP finance organization, and I am personally truly excited to work with Bill and drive NXP's profitable growth going forward. At the same time, I'd like to highlight the outstanding contribution Peter Kelly has played in the strategic evolution of NXP. Peter first came into the Company in an operations role over a decade ago and then quickly moved into the CFO role to drive the financial discipline our stakeholders have all come to expect. He has been a clear thinking, strategic advisor to myself and a highly valued mentor to many on the NXP management team, obviously, including both Bill and Jeff. We wish Peter the very best in the next phase of his life and hope he gets to spend more quality time with his family.
And with that, I would now like to pass the call to you, Bill, for a review of our financial performance. Bill?