Ladies and gentlemen, thank you for standing by and welcome to NXP's Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to your first speaker, Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Thank you, Michelle. Good morning, everyone. Thank you for joining our call today. With me on the call is Kurt Sievers, NXP's CEO; Rafael Sotomayor, NXP's President; 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 third quarter of 2025. NXP undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure on forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core 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 Second 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 Kurt. Thank you, Jeff, and good morning, everyone. We appreciate you joining our call today. I will review our quarter two performance. Then I will discuss our guidance for the third quarter. Beginning with Q2, our revenue was $26 million better than the midpoint of our guidance. The revenue trends in all our focus end markets were above expectations, reflective of increasingly positive cyclical trends. Taken together, NXP delivered quarter two revenue of $2.93 billion, a decrease of 6% year on year. Non-GAAP operating margin in quarter two was 32%, 230 basis points below the year-ago period, and 20 basis points above the midpoint of our guidance. Year on year performance was a result of the lower revenue and the related gross profit fall-through, partially offset by $40 million lower operating expenses. From a channel perspective, distribution inventory was consistent with our guidance of nine weeks, while still below our long-term target of 11 weeks. During the quarter, we did not experience any material customer order pull-ins or push-outs, which could be associated with tariffs. From a direct sales perspective, we continue to support Western Tier 1 automotive customers with their desire to digest on-hand inventory. However, we do believe that for the most part, the Tier 1 are either approaching or already at normalized inventory levels. Now, let me turn to our expectations for the third quarter. Our guidance for the third quarter reflects the combination of an emerging cyclical improvement in NXP's core end markets and the performance of our company-specific growth drivers. We are guiding quarter three revenue to $3.15 billion, down 3% versus the third quarter of 2024, and up 8% sequentially, a return to better-than-historic seasonal trends. At the midpoint, we expect the following trends in our business during quarter three. Automotive is expected to be flat versus quarter three 2024, and up in the mid-single-digit percent range versus quarter two 2025. Industrial and IoT is expected to be up in the mid-single-digit range year on year and up in the high single-digit range versus quarter two 2025. Mobile is expected to be up in the low single-digit% range year-on-year and up in the mid-20% range on a sequential basis. Finally, communication, infrastructure, and other is expected to be down in the upper 20% range versus quarter three 2024, and flat versus quarter two 2025. Our guidance assumes channel inventory will remain at nine weeks. However, if the cyclical recovery continues, we may stage additional products at our distribution partners to be competitive, and hence, we may selectively increase the inventory in the channel. With respect to direct sales, our automotive outlook assumes that we will come closer to shipping to natural end demand. In industrial and IoT, which is primarily served through distribution, we see globally a broad-based recovery across both core industrial and consumer IoT. In summary, NXP's second quarter results and guidance for the third quarter reflect an increasingly positive view that a new up cycle is beginning to materialize. This is based on several signals we track regularly. These include continually growing customer backlog levels placed with our distribution partners, improved order signals from our direct customers, increased short cycle orders, and increasing product shortages leading to customer escalations. At the same time, the tariff environment continues to create a level of uncertainty in the long-term planning of our customers. Yet, as of today, the direct impact of the current tariffs is immaterial to NXP's financials. Looking ahead, we will continue to manage what is in our direct control to drive solid profitability and earnings. This includes strengthening our competitive portfolio by leveraging the recently closed acquisition of TTTech Auto, as well as the addition of Kinara and Aviva Links, which are still pending regulatory approval. Lastly, we are on track to align our wafer fabrication footprint consistent with our hybrid manufacturing strategy. I would like to pass the call over to you, Bill, for a review of our financial performance. Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during Q2 and provided our revenue outlook for Q3, I will move to the financial highlight. Overall, our Q2 financial performance was good, with revenue and gross profit above the midpoint of our guidance range, while operating expenses were at the high end of our guidance due to the timing of tape-outs and project spend. Taken together, we delivered non-GAAP earnings per share of $2.72, or $0.06 better than the midpoint of guidance. Consistent with our guidance, the distribution channel inventory was nine weeks. Now, moving to the details of Q2. Total revenue was $2.93 billion, down 6% year on year, and $26 million above the midpoint of our guidance range. We generated $1.65 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 56.5%, down 210 basis points year on year and 20 basis points above the midpoint of our guidance range due to higher revenue and slightly favorable manufacturing costs. Total non-GAAP operating expenses were $720 million, or 24.6% of revenue, down $40 million year on year and $10 million above the midpoint of our guidance range. From a total operating profit perspective, non-GAAP operating profit was $935 million, and non-GAAP operating margin was 32%, down 230 basis points year on year and 20 basis points above the midpoint of the guidance range. Non-GAAP interest expense was $85 million, while taxes for ongoing operations were $148 million, or a 17.4% non-GAAP effective tax rate. Non-controlling interest was $12 million, and results from equity account investees associated with our joint venture manufacturing partnerships were zero. Taken together, the below-the-line items were $1 million unfavorable versus our guidance. Stock-based compensation, which is not included in our non-GAAP earnings, was $117 million. Now, I would like to turn to the changes in our cash and debt. Our total debt at the end of Q2 was $11.48 billion, down $247 million sequentially, as we repaid the $500 million tranche of debt due in May 2025 during the quarter. Our ending cash balance was $3.17 billion, down $818 million sequentially due to the cumulative effect of acquisition costs, debt reduction, capital returns, equity, and CapEx investments offset against the cash and additional liquidity generated during the quarter. The resulting net debt was $8.31 billion, and we exited the quarter with a trailing 12-month adjusted EBITDA of $4.75 billion. Our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q2 was 1.8 times, and our 12-month adjusted EBITDA interest coverage ratio was 17.4 times. During Q2, we paid $257 million in cash dividends and repurchased $204 million of our shares. Due to the capital requirements related to the TTTech Auto acquisition, the potential closure of Kinara and Aviva Links, and our long-term net debt leverage ratio targets, we paused the buyback during the quarter. We expect to resume the buyback in Q3 consistent with our long-term capital allocation policy. Turning to working capital metrics, days of inventory was 158 days, a decrease of 11 days versus the prior period. With inventory dollars slightly up sequentially. Days receivables were 33 days, down one day sequentially, and days payable were 60 days, down two days sequentially. Taken together, our cash conversion cycle improved to 131 days. Cash flow from operations was $779 million, and net CapEx was $83 million, or 3% of revenue, resulting in non-GAAP free cash flow of $696 million, or 24% of revenue. During Q2, we paid $35 million towards the capacity access fees related to VSMC, which is included in our cash flow from operations. Additionally, we paid $50 million into VSMC and $16 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 third quarter. As Kurt mentioned, we anticipate Q3 revenue to be $3.15 billion, plus or minus about $100 million. At the midpoint, this is down about 3% year on year and up 8% sequentially. We expect non-GAAP gross margin to be 57%, plus or minus ±50 basis points. Operating expenses are expected to be about $735 million, plus or minus about $10 million, or about 23% of revenue, consistent with our long-term financial model. The sequential increase is primarily driven by the acquisition of TTTech Auto and variable compensation. Taken together, we see non-GAAP operating margin to be 33.7% at the midpoint. Please note our third quarter guidance does not incorporate the remaining two acquisitions, which continue to be under regulatory review. We estimate non-GAAP financial expense to be about $91 million. We expect non-GAAP tax rate to be 17.4% of profit before tax. Non-controlling interest will be about $14 million, and results from equity-accounted investees about $1 million. For Q3, we suggest for modeling purposes you use an average share count of 253.8 million shares. We expect stock-based compensation, which is not included in our non-GAAP guidance, to be $116 million. Taken together at the midpoint, this implies non-GAAP earnings per share of $3.10. Turning to uses of cash, we expect capital expenditures to be around 3% of revenue. We will make a $225 million capacity access fee and a $145 million equity investment into VSMC, as well as a $15 million equity investment into ESMC, which are our two equity-accounted foundry joint ventures under construction. Pending the regulatory approval for Aviva and Kinara acquisitions, we will result in a cash payment of $550 million. Now, in closing, I would like to highlight a few focus areas for NXP. First, as Kurt mentioned, based on the signals we tracked, it appears to us we are in the early stages of a cyclical recovery. Second, we have started the consolidation of our legacy front-end 200 mm factories as part of our hybrid manufacturing strategy. This includes pre-building a bridge stock for future customer requirements, which will result in higher inventory. We expect by year-end this will be approximately six to seven days of inventory, which we will hold in die form. As a result, our front-end utilizations have moved to the mid 70% range during Q2 from the low 70% range before. Lastly, we will continue to focus on what is in our control, driving solid profitability and earnings consistent with our long-term financial model. I would like to now turn it back to the operator for your questions. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We do ask that you please limit yourself to one question and one follow-up. One moment while we compile the Q&A roster. The first question comes from Ross Seymore with Deutsche Bank. Your line is now open. Hey guys, thanks for letting me ask a question. Kurt, you went through some of the same signals this quarter as you did last quarter about the cyclical business turning and then, of course, some of the idiosyncratic NXP-specific drivers. I just wondered how you'd compare those signals quarter to quarter. Is your cyclical confidence rising quarter- over- quarter? Is it staying about the same? In general, just how are you feeling this quarter versus last? Yeah, thanks and good morning, good morning Ross. Clearly better. It is indeed the same signals. That is actually the reason why we do this. We track these signals all the time. There is clearly an improvement on all four of them over the past 90 days. That is exactly why I tried to highlight them because that drives our growing confidence that we are in the beginning of a new up cycle. 90 days ago, I guess I really talked about a balance of uncertainty from tariffs and some early, early signals, which would signify the early innings of a new cycle. This time, I would say nothing really new on the tariffs, but clearly those signals about a new up cycle have strengthened since 90 days ago. A market difference, Ross, versus one quarter ago. Great, thanks for that color. T hen for Bill, just. I guess two parts quickly on margins. One, how much does your gross margin get benefited from running the fabs a little hot in the consolidation? T hen, two, with those two pending deals on the OpEx side of things, how do you expect to manage that if they close? Does OpEx pop up in the fourth quarter, or can you kind of offset that in other ways to keep that 23% intensity? Sure. Good morning, Ross. Related to Q2 results, delivering the 56.5%, it had very little impact. Related to the 57%, not much, I would say, because again, you start the material and we're only building a couple of days, and at the end of the year, it'll be about six to seven days. As you can see, we've been also focused on draining some of our internal inventory as well. You have that net effect occurring there. Related to the acquisitions that are still pending, again, we have mechanisms in a way to try to absorb this as much as we can. If we do close in this quarter, which we do expect, we may be a bit higher. Remember, these two acquisitions are the smaller of the three. Just to remind you from a headcount size, I believe, Kinara is around 60 and Aviva Links is around 100. Thank you. Our next question will come from Vivek Arya with Bank of America Securities. Your line is open. Thank you for taking my question. Kurt, I heard on the call the suggestion that you are in early stages of a cyclical recovery. If we apply that to the automotive segment, Q2 sales flattish year on year. I think Q3 are also indicating to be flattish year on year. That seems to be a somewhat more conservative tone that we hear from some of your analog peers who are more optimistic. Right? They're seeing the year-on-year sales increase, especially in China. How would you contrast the pace of recovery you are seeing in automotive versus your peers? When do you expect your automotive sales to start growing year on year? Can that happen in Q4? Hey, good morning, Vivek. Yeah, I can't really contrast to our peers because I think we are the first one to have earnings. I wouldn't really know what they have to say this quarter. We will, probably all of us, learn a little later. I still fully understand your question, and I would reformat this a little. Our automotive business is accelerating massively from the second into the third quarter when you think about the sequential growth. We just gave you actuals of the second quarter, which were 3% up quarter on quarter. For the first time in a long time, by the way, flat year on year, as you rightfully said. We said now mid-single digit up into the third quarter. That is doubling in terms of sequential growth, Vivek. Therefore, I'd say there is a clear difference. Furthermore, the underlying inventory burn, which has held us back for quite a while, that is actually what is moderating or eventually going away through the quarter. That was the Tier 1 inventories in the Western world, which we've talked about many quarters where we had to follow their desire to bring down their internal inventory quite materially. It appears that this is coming to an end through this upcoming quarter. That is actually the real factor. China, since you also asked about China, China has been strong all along. Mind you that we are serving the automotive market in China predominantly through distribution, where we have been and continue to be below our inventory targets there with nine weeks, significantly less than 11 weeks. What really matters is this change in the Western Tier 1s. What I try to say is, Vivek, I don't think we should sugarcoat that the automotive macro is certainly mixed. S&P just came out with their latest SAAR forecast for this year, which they upped actually from 90 days ago to flat year on year, 90 million cars. When we talked 90 days ago, they were actually at 88 million cars. The forecast has slightly gone up. I wouldn't celebrate this as a big thing. It's still flat. Our main improvement is that we come closer to shipping to natural end demand, Vivek. That's the key point because the inventory burn at the Tier 1s is going away. That's how I would frame the automotive environment at this stage. Okay. For my follow-up, just wanted to relate one for Bill. Bill, if you could give us just the contributions from the acquisitions. I think one has closed, two have not closed. Just how to kind of think about when they do close, what the contribution ranges might be. If I were to make a guess for Q4 and say, if NXP sales were to grow low to mid-single digit sequentially in Q4, what would that do to gross margins? Is there anything in the mix that we should be thinking about as we kind of conceptually think about Q4 gross margins? Okay. There was a number of questions, Vivek, which you did slow into your second question. Well done. Let me try to pass them. The first one was about the contribution of the acquisitions. We actually closed one acquisition in the second quarter, which is TTTech Auto. And as we said before, their contribution from a revenue gross margin perspective is completely immaterial to our financial model all the way through 2027. We did acquire them for the IP and know-how they have in software for safe processing in the software-defined vehicle, where it is a major, major contributor to our system solutions there. On the OpEx side, we do have to digest OpEx from them. I think Bill talked about this in the prior quarters, both quarters before, that we do create space with our existing OpEx by actually deprioritizing less strategic parts in our portfolio in order to have enough room to swallow TTTech Auto's OpEx. I think we also told you they come with 1,100 software engineers. Those are now indeed part of NXP. The OpEx guide, which you get for quarter three, Vivek, includes fully TTTech Automotive. It's fully in there. We did create space for this by deprioritizing other elements. All in all, and here I speak for what Bill said earlier, we are on track in the second half of the calendar year 2025 to be in our OpEx model or say 23% OpEx of revenue. That's what we're going to hit in the second half of calendar year 2025. You talked also about Q4, and I think this gets pretty lengthy here. We don't really guide here for Q4, but you put something into my mouth. From experience, I know I have to say something. Otherwise, you say I said it differently. We don't guide Q4, but I know you want to model something, Vivek. I guess for Q4 revenue to start with, it is fair to orientate yourself on the long-term historical seasonality, which we have had from Q3 to Q4, or to be more specific, a flat to slightly up revenue development from Q3 into Q4. I want to remind you when saying this that this is all sitting on nine weeks of inventory. In order to stay competitive in the channel, we may want to stage our what we call hero products, which are the products which have the best sales through higher in the channel from an inventory perspective in order to be competitive against the competitive pressure in an up cycle situation. I made that comment for quarter three. I want to be sure that you all understood what I said. The quarter three guide, which we gave you, the $3.15 billion sits at nine weeks, but we may take it higher by putting more inventory in. The same holds for Q4. That would be, of course, over and above this historic seasonality of flat to slightly up, which I talked about earlier. The last part of your question was about the impact on gross margin, and that I give to you, Bill. Sure. Q3. Related to gross margin, the way to think about this, the 57% guide assumes that we stay in the mid-70s from a utilization standpoint because at the same time, we're lowering inventory, but we start to bridge and build up a couple of days of our inventory as well. Now, for Q4, we are not guiding it. However, I would continue at this time to model a front-end utilization in the mid-70s based on what Kurt just said, the normal revenue seasonality of flattish to slightly up. Unless we see stronger business signals and conditions, which we may want to increase this then up to the upper 70s. We haven't made that decision yet. It's something that we will monitor very carefully and explore from now until next earnings period. Again, beyond 2025, I know you didn't ask, but I'm sure somebody will ask. Without providing direct guidance, I'll just refer to what I said last quarter and what we shared during Analyst Day as a good rule of thumb. For every $1 billion in incremental revenue, we should see about 100 basis points of incremental margin on a full year basis. So at $12 billion, revenue should be around the 57%, $13 billion at 58%, $14 billion, 59%, and so on. Of course, there are timing elements and other levers that may get us above or below these levels given any quarter, hence why we give ±5 0 basis points on a quarterly basis. Remember, these other levers include front-end utilizations back to the 85% level or even above, mix refilling our channel target of 11 weeks, ramp up those new products, improve costs, normal annual low single- digit ASPs, and eventually think about post-2027 reducing our fixed costs with our consolidation efforts, part of our hybrid manufacturing strategy. A lot going on, but we have the levers in place, and we feel very confident in delivering our long-term model range of 57%-63%. Our next question will come from François Bouvignies with UBS. Your line is open. Thank you very much. I just have a follow-up on your channel inventory. You said, Kurt, that you expect to sit at nine weeks. Your guidance is based on nine weeks, and you may increase it either in Q3 and Q4, if I recall correctly. What are you waiting for exactly to increase? I mean, what are the signs that would make you make the decisions and why you do not do it right now? What are the moving parts that would make it increase to higher levels? That would be my first question. Yeah. Thanks, François. Good afternoon. I actually did not say or Q3 or Q4. What I want to say is it could be Q3 and Q4. That really depends on the circumstances. What we are waiting for is a further solidification through this quarter, but it could be in this quarter, of at least those four trends, which I talked about earlier, which is the number of short cycle orders, which is the growing backlog of the orders at our distribution partners, which is the growth of our direct customer order book, and actually supply escalations, which, by the way, have almost doubled over the last 90 days. If this continues to go, and that's why I put it into my prepared remarks, François, it could be as early as in this running quarter that we start to touch this. Again, the importance here is it is not about those $200 million revenue, which is probably the difference currently between nine and 11 weeks. It is much more about the competitiveness of the right products on the distributor's shelves. That is what we are watching. Likely, it will lead to an increase then at some point of the inventory, but we do not look at it as making revenue because we know we just ship revenue from here to there. It is about being competitive and drive our sales at the distributors with the right products. That is how you have to think about it. Again, there is a chance it happens in Q3 and the same again in Q4, and that could be end eventually. Makes sense. Thank you very much, Kurt. Maybe one for Bill on the inventory days, 11 days below is actually a big decrease in days. I mean, when you look in the history, so that's welcome. Still, the absolute number is still relatively high. How should we think about your own inventories in Q3 and Q4? Do you want to work it down more aggressively, perhaps, given the relative high level? It would be great to have your color here. Absolutely, François. For Q2, we made some progress on reducing our internal DIO from 169 days last quarter to 158 days. Now, approximately five days are linked to a future asset for sale. The remaining is linked to reducing our inventory levels from a days perspective. For Q3, based on the combination of inventory linked to the higher revenues and taking account the start of our pre-builds of a couple of days, we expect to be at a similar level ending in Q3. Please note, we are still holding about 14 days' worth of channel inventory on our balance sheet. By year-end, hold about six to seven days of pre-build stock related to our manufacturing consolidation efforts. Overall, we're trying and continue to balance and hold a bit more internal inventory versus our long-term target of 110 days to ensure we improve supply in this new emerging up cycle from the lessons learned from the COVID supply crisis in the past. We're trying to balance this as best as we can. Thanks a lot. The next question will come from CJ Muse with Cantor. Your line is open. Yeah, good morning. Thank you for taking the question. I guess digging a little bit deeper into auto, you talked about shipments tracking to natural end demand. I was hoping perhaps you could be a little more specific within your key growth drivers and the trends you're seeing there, both from a China and kind of non-China perspective, to get a sense of the rate of recovery geographically. Yeah. Thanks, CJ. So a couple of statements here. One is, as we annually update them, a sneak preview, it appears that all the growth drivers, which we laid out, and that means, of course, also including the automotive ones, are on track to the targets which we had given you in November last year in our Investor Day. Secondly, I think it's really important in automotive to take a step back and look at our overall automotive situation, probably relative to peers. I want to remind you that the revenue which we just guided for quarter three is only 4% below the peak which we had in automotive in the fourth quarter of calendar year 2023. We are just a little bit away from the peak. We have done extremely well through this, what you would call a down cycle. Again, you know where the industry has gone in what high percentages from peak to trough. We are now only 4% away from the former peak. Now, of course, we are going to grow above that peak because of the growth drivers. I just wanted to put this a bit into perspective also relative to the question earlier from Vivek. Now, on a geographic basis, CJ, the way I would phrase it is, China has been and continues to grow both from a quarter-on-quarter perspective as well as from a year-on-year perspective. There was one dip in the Q-on-Q growth in auto in China, which was Q1. We talked about this earlier. This is a seasonal drop, which we every year have in China. It did grow very nicely into the second quarter, and so it will into the third quarter. The same is true for Japan and Asia-Pacific. What for us is the change, which is significant and which really makes a difference to us, and that also drives the higher sequential growth for the total auto segment, is that the inventory burn with the Tier 1s, and that is especially in Europe and to a lesser extent in the U. S., is starting to go away. Which means through this quarter, we think we will start, versus the second half of the quarter, maybe versus the end of the quarter, we will start to shift to end demand. That makes a real difference because we get then growth without the macro would need to improve. We do not need improvement from the macro for us to grow. We also do not need restocking at customers. That growth comes alone from the moderation of the inventory burn at these Tier 1 customers. That is the biggest dynamic which we currently have, CJ. Very helpful. I guess a follow-up question for you, Bill. You spoke earlier to the fact around the key drivers to gross margins. I was hoping perhaps you could speak to maybe the near term, the next six to nine months, within the kind of structure of 57%-63% target model. Would you highlight any particular drivers outside of utilization and mix that could impact trends there or no? Yes. I think Kurt alluded to it. We still are holding at nine weeks. Obviously, that's an opportunity once we feel and target in specific areas to bring that back up to 11. That will also help our inventory. I think ongoing improved costs. We continue, if you recall, in the beginning of the year, we always have our low single-digit price adjustments. It takes time to get through and improve for the full year effect. That becomes a tailwind in. We continue. More medium term, it's really going to be a motion of why I laid out that rule of thumb. That's where we are, b esides the utilization that I mentioned earlier. Thanks so much. Our next question will come from Chris Danely with Citi. Your line is open. Hey, thanks, guys. Hey, Kurt, can you just give us a little more color on the visibility trends, maybe through the end of the year, even into next year? You mentioned some shortages and escalations. Just any sort of quantitative metrics you can give us, say, now versus three months ago on how the rest of this year and next year is looking? Hi, Chris. I'm smiling now because I went ahead of my skis already. The Q3 guidance you just got. The difference to 90 days ago is that 90 days ago, we did not even provide any, not even a remote soft guide for the next quarter. I did offer that color for the calendar quarter four of this year a few minutes ago with a flat to slightly up, typically historic seasonality b ased on the nine-week distribution inventory. We may or may not be higher than that. My sense is, Chris, that that dynamic is continuing because inventory has burned away. Our company-specific growth drivers, and here, I would actually call out auto because it is almost 60% of the company, are just firing on all cylinders. I mean, there is a whole race now on these software-defined vehicles, which is driving very hard our revenue in the S32 processor families, going very, very well. This number one position, which we have there globally, we really see it expanding. Radar is doing very well because the ADAS levels are driven up. I personally even believe if you think a bit more midterm, that robotaxis will become more pervasive. In electrification, even though people in the Western world might have been a little bit more muted on it, electrification just keeps penetrating. S&P latest forecast for this year is 15% more units, car units, which are xEVs over last year, and ending this year at 43% global penetration. Now, what makes me really excited, Chris, in all of this is China. Rafael and I, we were just a week before last week, we were together in China. Maybe, Rafael, you share a little how excited we were by how innovative and how fast customers are turning designs into revenue. Yeah, indeed. Thanks for the question on that one. China. If you think of China, China is an OEM-driven market where they're driving innovation through software-defined vehicles. It's extremely fast-moving. Clearly, China is extremely competitive. The competitive pressure, and I will get questions on this, is not only on pricing. It's also on product differentiation and innovation. Quite exciting. We had a week of very good meetings with both the OEMs and the Tier 1s where kind of part of the transition plan passed the relationship to me. Not only that, we started initiatives associated with software-defined architectures, BMS, and radar. Quite exciting, the opportunities that we see in China. The strength in China comes also with Tier 1 s. There's a story there in China that's probably not told enough. The Tier 1 s in China are relevant not only for China, but they're relevant for foreign OEMs, for China markets and non-China markets. Quite important meetings there with the Tier 1 Chinese customers who are driving innovation and competitiveness in non-China OEMs. Thanks for the color, guys. Just as a follow-up, I guess on that same topic, I mean, it sounds like auto, you're most optimistic on that. If we look at the next, I don't know, year, year and a half, Kurt, would you expect higher relative growth from your automotive segment or your industrial segment? Like Chris, two points. One is we are as optimistic on industrial. It was an auto question, so we answered on auto. That does not mean we are not optimistic on industrial. The best way to answer your midterm question is we see absolutely no reason to not meet our November 2024 three-year Wall Street guide of 8%-12% both in industrial and IoT as well as in auto. Since we will be certainly below this this year, we clearly see the opportunity to catch up next year and the year after, which is greatly helped by the cycle and by the company-specific drivers. It is also industrial. Maybe, Rafael, you speak a bit about early views on edge AI capability of NXP in industrial. Yeah. We see. We already started to see the signals already in industrial for the next quarter to actually normalize. This is the first time and last time we discussed how Q2 industrial IoT was being driven by a consumer space. The changes that we see now in Q3 is that this is broad-based. The growth that you see in quarter- over- quarter is driven geographically in all areas. All geographic geographies are showing growth. The other thing we're seeing is we also see now a big part of this growth comes also from core industry, not just consumer. The trends of the stable situation in industrial for NXP on the MCU and microprocessor in place is starting to kind of take shape. Now we're starting to get engagements for next year on higher performance, higher AI capabilities with our Tier 1. The thesis of our industrial growth of 8%-12% that contributes to 8-12% are still very much in play and continues. Thanks a lot, guys. That's very helpful. Our next question will come from Thomas O’Malley with Barclays. Your line is open. Hi, guys. Thanks for taking the question. If I look at last quarter and this quarter, obviously, one of the major changes is your confidence that you could actually up some of the weeks of disti inventory. Y ou're still kind of waiting mid-quarter here, and you kind of addressed that already. You made the remark nine weeks to 11 weeks. Is 11 weeks the maximum that you guys would channel refill in this period of time, or is there any circumstance in which you would go a little bit higher than that? Just walk me through why it would be 11 weeks? Is that just kind of the stated goal long-term, or what would change to make you maybe go a little bit higher than that, given that you guys are clearly seeing a recovery? Yeah, Tom, it's a stated long-term goal. Which we actually about the same size we had before the whole COVID and supply crisis. We completely relooked at it, reassessed it by the mix of the pieces which are in there. N ot by top-down decision, but by bottom-up assessment, we arrived again at 11 weeks being a reasonable target across our different segments. You know, Tom, the reality is once we are there, I think we also want to stop speaking about this at the time because we got almost paranoid about this, which we did because we were probably the only ones to hold our channel inventory very much under control through this cycle, which has served us extremely well. Yeah, we want to go back to normal. The definition of normal for us is 11 weeks, and then we just continue on a much more regular basis. Yeah, maybe it jumps today to 12 and jumps down to 10 again, but the target, the stated long-term target, is indeed 11 weeks. I would almost go that far, and I think we had it even on a slide there in our Wall Street model, which we provided last November. The 11 weeks was actually an element of the forecast. We said this forecast is valid with the 11 weeks inventory on the long run. Helpful, Kurt. You gave us a little sneak peek into Q4, so I cannot help but pick a little bit there too. You are saying flat to slightly up. If you look at normal seasonality for your segments into the December quarter, at least over the past seven or eight years, it looks like auto is up low single- digits, industrial is actually up a bit more robustly in the fourth quarter. If you were to plug that in, you kind of get greater than 20% growth in the industrial business. You are clearly pointing to some strength there. Any differences that we should be thinking about in the recovery between auto and industrial as the year closes, or would you say the contributing factors to that flat to slightly up are relatively in line with what you have seen historically? Tom, that's a stretch too far. Clearly, no segment guidance of Q4. What I did say, the flat to slightly up is indeed just mathematically our, I don't know, nine-year or so a verage historical seasonality across the entire company. T hat's what we get for Q4, and it stays there. I'm sorry, but we really can't go to a second level at this stage. The next question comes from Joshua Buchalter with TD Cowen. Your line is open. Hey, guys. Thank you for taking my question. In your prepared remarks, I think you talked about not seeing any material impact from the tariff environment or pull-ins. Can you maybe elaborate on what signals you're looking for and what makes you so sure that there's not really a meaningful impact yet? I think a few of your peers have commented. Your customers don't check a pull-in box when they place an order. I'd be curious to hear if there's any changes in your customers' behavior or what you're seeing on the tariff front. Thank you. Oh, we have a pretty good view on this, Joshua. Because we are very alert to it. That has to do that we have been highly disciplined over a number of years now on inventory levels. We did not want to get into the trap of being a victim of pull-ins here at the very end of the down cycle, or better, at the beginning of the up cycle. The way we can do this is we have a lot of AI running on our auto patterns, which tells you immediately if there is anything which falls out of the normal patterns. When we see that, we go back to the customer and ask, "What is it?" If there is a clear plea for this, would, is a wish for a pull-in relative to tariffs? We typically do not support it because that is exactly what we want to avoid. We had very few of those situations, so I am not talking fiction. Not much though. Therefore, we can really make the statement. We also looked at it relative to Liberation Day if there was any correlation of any of these signals. Given our very application-specific business structure, we have pretty smooth order trends. I mean, this is not like everything is jumping around all the time. It is relatively smooth. We would see those deviations. That is the basis I made this comment from. My comment, to be very clear here, was a firm comment for the past second quarter. The numbers which we gave you had no pull-ins or push-outs. The comment also holds for what we can see from today's perspective for the third calendar quarter. Now, I do not know yet what the rest of the quarter is going to be in the end, but it does not appear at this stage that any of this would happen. Got it. Thank you, Kurt. You touched on this before, but I was wondering if you could maybe comment on behaviors from your auto customers specifically related to their investment in software-defined vehicles. I mean, it's a very challenging time still to be an auto OEM. Are you seeing them sustain, accelerate, pull back on their investment in newer technologies and features like SDV and ones that that enables? Thank you. Yeah. That's actually what I find exciting because, yes, that is accelerating. Clearly, OEMs around the world are finding out more and more that the SDV concept delivers them a number of very, very significant competitive advantages. One is really consumer value because the car just doesn't age in the hands of the consumer, which is a significant advantage. It also makes their designs more versatile and cheaper. I'm going that far to claim that a lot of the cost advantages, which the Western car industry is suffering from or disadvantages against the Chinese players, is because China has embarked earlier, faster and more successfully on SDV concepts. It's a must-do, Joshua, for the rest of the world to catch up, to remain competitive with China Inc. Clearly an acceleration. I know that that sounds orthogonal to the tariff pressures and other turmoil this industry is in, but they all know this is the way to move forward. It's almost like electrification of drivetrains. People know how to do it. It's now like how to reach the consumer with it. The next big thing is SDVs. The next big thing in that is NXP. I mean, we are with our S32 family and our Ethernet connectivity with it. Now TTTech Auto software. I mean, we are just far away from everybody. Got it. Thank you. Kurt, if this is indeed your last earnings call, thank you for all the help over the years. Thanks, Joshua. Thank you. Our next question will come from Stacy Rasgon with Bernstein Research. Your line is open. Hi, guys. Thanks for taking my question. Kurt, I wanted to revisit the TTTech in the guide. I know you said it was insignificant, but I mean, they have 1,100 employees, and you paid $625 million for it. Is the revenue really zero? How big is the insignificant amount of revenue that's actually in Q3? It is insignificant, Stacy, because we do not want them to do what they used to do. To an extent, we need that competence they have and that know-how in a sector which they know, but really going more from maybe a service model to becoming an integral element of what we do for the SDV. That is why this is also changing to what it might have been in the past, Stacy. Okay. So it's like what, single-digit millions, or is it double? Just help me size it. How big is it? We don't give a number for it, Stacy, but it is really completely insignificant and immaterial to NXP's financials. On the revenue/gross margin as a consequence side, it is not insignificant at all from the OpEx side, which I called out because those 1,100 engineers, we, of course, want to have them. We pay them, so they are on the payroll. So that's really where the impact is. Got it. Okay. So there's a business model change, is what you're saying. Okay. I understand. Absolutely. Absolutely, Stacy. Yeah. Thank you. For my follow-up, I wanted to take a little bit on Q4. It does sound like I get it. The guidance does not include filling the channel, but it is certainly on the table. You sort of gave a number for kind of typical seasonality for Q4. Are there plausible scenarios where you could be above seasonal in Q4 without filling up the channel further than it is right now? Stacy, we don't guide Q4 at all. I'm not asking you to guide it. No. You asked me if I could give you direction today if we can be above seasonality. I mean, that's your question. If we just take a call. What I'm asking is do you need to fill the channel to be above seasonal is what I'm asking? No. That is fine with nine weeks. However, the sell-through trends, Stacy, are very dynamic to the positive side. I made that comment even for quarter three, Stacy. I mean, you asked for quarter four. Honestly, I think the more burning question is for quarter three because already there, the dynamic is such that we might selectively put it a little higher. Now, if that all continues the way it actually in all the past cycles has continued, of course, the dynamic holds or accelerates even into Q4. I mean, even there, I wonder a little bit. I mean, we've had negative pre-announcements from auto OEMs. The demand environment for auto doesn't seem fantastic. Is it just a normalization of inventory or what? I absolutely know what you speak about. There were a few less overwhelming announcements very recently. I think we have to look at the total market, Stacy. I told you that S&P just upped their car forecast for this year from 88 million to 90 million. It is only 2 million cars. I would also clearly not say it is not the SAAR which is driving us, but it is not going backwards. It is actually improving a little. Our growth comes from content increase thanks to our radar, electrification, S32. It comes, and that is really important, it comes from a moderation or even cease of the inventory burn at the Tier 1s in the Western world, which has been a big headwind over, I would say, eight quarters now. If that goes away, we just start to shift to natural end demand, which is growth, Stacy. I mean, there is not much we have to do. It is just the inventory burn goes away at the Tier 1s, and we already grow. Got it. No, that's helpful. Hey, I apologize if I sound like a harpy. Thank you very much. No, that's all right, Stacy. I think we are at time. I want to thank you all for the attention. I trust you got a feel that we have quite a change from 90 days ago relative to the sentiment on the up cycle, which starts to be clearly broad-based in industrial and IoT across geographies, across consumer IoT and core industrial, and across direct and distribution channels. It cannot be broader than this. Also, auto, which was actually the best segment, if you will, in the second quarter because it was already flat year on year, is accelerating from a sequential perspective. What excites us in auto is the design win traction on the one hand and the fact that this damp inventory burn at the Tier 1 s starts to go away. Having said that, thank you very much all, and speak to you in the individual calls. Thank you. Bye-bye. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.