Great. Good morning, everybody. My name is John Vinh. I cover semis here at KeyBanc Capital Markets. We are very fortunate this morning to have NXP Semiconductors N.V. with us. We have Jeff Palmer, Senior VP of Investor Relations. Congratulations on your retirement, Jeff. It has been great to work with you all these years. I am very glad that you were able to include us in your farewell tour. I am still here for a few more months, John. Thank you. Welcome Mike back to the world of semis. Yep. I am sure you could be better. Anyways, why do we just kick things off and just talk about the cycle, right? Okay. Jeff, can you just walk us through kind of what are the key trends that you're seeing right now? Yeah. So, we reported earnings just a couple of weeks ago, so there's not a lot of new news. But what I would say is our view of the environment is considerably better now than it was 90 days ago and even 12 months ago, so things have clearly gotten better. Lead times are stretching out a little bit in certain areas. Book-to-bill is solidly above one across all end markets, which is good. I would say distribution is in great shape. We're running at 11 weeks, which is our target. We have been running under that for a couple of years during the downturn, but we're back to 11 weeks in the channel. We are seeing escalations go up, so these are folks who come in late inside of lead time and place orders, and so we monitor those on a kind of event type of basis, and they're up. We have had to do a little bit of price increases as we are seeing some inflationary input costs come in. It's been kind of targeted here in the first half and immaterial to the overall financials, maybe a little bit more so in the second half. We'll know when the second half's all done. But all in all, I'd say we feel very good about where things are at. One of the questions you had earlier, John Vinh, I'll maybe circumvent it, is about restocking. As you know, in our auto business, about 60% of our auto businesses we do direct with the big tier 1s in North America and in Europe, and then the other 40% we manage through the channel, and that's primarily in Asia, Korea, Japan, China, and Southeast Asia. I would say the challenge we still face is some of the large tier 1s are still holding very low levels of NXP inventory. Our ideal is for them to hold somewhere between 10 to 12 weeks, and there are a few who do that, and that's fine. We have great relationship with them, but there are quite a few of large tier 1s who are still between three and six weeks. I just think the challenge is some of them don't have great working capital metrics and are going to just hope that we will manage the inventory for them. So yeah, that's a great, interesting commentary that you guys had talked about, so maybe we can just maybe dig into that a little bit. So how do you think this ultimately plays out, Jeff Palmer? And then are you planning to maybe hold a little bit more inventory for them? I was talking to one of your peers last night, and they said that they're actually seeing signs that some of the OEMs are actually starting to hold inventory on behalf of the tier ones. Is that a trend that you're also seeing? Yes. But it's not broad based. It's very specific and targeted because the OEMs know fully that their tier one partners are challenged and don't want to bring in too much inventory. But it's not broad based. So what triggers it to change? Here's the calculus I think a tier one's going through. They look at NXP and they say, "Well, lead times are sort of reasonable." They look at our balance sheet and they say, "Oh, they've got 156 days of inventory, so things look good." That'll work fine if you come in and we have a product in finished goods. It'll even work fine if we have the die and we can put it through the back end within the quarter. But there's going to be a day where someone's going to come in with an order, and we're going to have to go to raw die. Right? Going to have to build the wafer, and that's 16 weeks minimum, and I think that will be the wake-up call. Okay. Just relative to previous cycles, are you planning to hold slightly higher levels of inventory going into this upcycle here? Our target's 110 days. We're holding at 156 days today. Probably by the end of the year, about 15-20 days will be buffer stock for some of our fab rationalizations we're going through. We'd actually like to get inventory down a little bit. There's not a plan for us to hold inventory on behalf of tier ones. I think one of the fallacies that people don't realize is our business is fundamentally a build-to-order model. If you as a customer don't forecast your demands on us, we're not going to make a guess. We have just too many SKUs, too many performance targets to hit, and so we're just not going to do it. Okay. I would imagine with lead times extending, that you are getting better visibility at this point. How far out do you have visibility to at this point? It depends. It's customer by customer. Yeah. You get some customers who give you rolling six-month forecasts, and you roll into that at all times. You have other people give you a month forecast. It varies. Yeah. I do not want to give you a flat number, John. Okay. It is very end market specific. I would say one of the things that is unique to NXP is the size of our channel business, through global distribution. We manage it very tightly. We have the ability to see what we ship into the channel, what the distributors ship out on a part level, customer level, but we also have the ability to see customers' backlog into distribution. If let us say you were a customer buying from one of the large distributors, I could see your backlog building. I cannot touch it, but I can see it is building, and I can see when you are ebbing and flowing it, and that gives us a good insight how the channel health is. Great. We feel very good about it. Being a veteran of many cycles, Jeff, anything you'd want to call out in terms of differences with what you're seeing in the current cycle versus past cycles? They all seem different. The last one was post-COVID, and I don't think any of us want to go through that again. But no, nothing unusual. Okay. Maybe you can dive into auto in a little bit more detail. Can you just talk about the trends you're seeing in automotive by regions and maybe between what you're seeing in EVs versus non-EVs? Sure. Overall, auto really started to turn the corner for us exiting Q3 of last year and into Q4. Notwithstanding the low order rates or inventory levels some of our Tier 1s have, I'd say auto's in very good shape. In this most recent quarter, all geographies were up, all product categories were up. We're feeling very good about product categories. I think we feel good about auto, other than just the issue we have with a few Tier 1s. Okay. What about between Europe and China? It seems like the Chinese automakers are doing extremely well, and the European automakers are struggling a little bit. Yeah. Are you seeing a little bit of that? We see the same news you see, John. Our view of auto is, we think the auto industry fundamentally is a 90-million-unit marketplace. You might have a little above that some years, a little below, but that's about steady state. We try to win with every partner we can, and then we let the consumer decide which car they want to buy. We don't obsess too much about car sales. We obsess a bit about global production, so we see how it's going, and we see exactly what you just mentioned, John. We see the Chinese clearly have won the EV battle from our perspective. Domestic China sales are a bit weaker, but some of the bigger guys are offsetting that with exports. The market in China's not been that bad in totality. Yep. Right? The Europeans, I think, are trying to figure out the next phase for themselves, and it's challenging, but I think they're doing well. I think the big brands, the luxury brands, will continue to sell on brand loyalty. Great. If you think about the growth for NXP in autos over the next 2 years, what do you see as the main key drivers? Is it going to be the same kind of company-specific drivers that you guys have called out in the past, such as SDV, radar, BMS, or are there other kind of emerging opportunities that could start to move the needle for you over the next 2 years? Given the dynamics of the auto market, where it is usually a 2- to 3-year design to revenue cycle, right? I know you guys probably get tired of hearing us talk about SDVs and radar and stuff like that, but we are in the very early innings of that upcycle. We feel very good about it. This last quarter, it looks like the accelerated growth drivers were just under 50% of our auto revenue, up very strongly year-on-year. The nice thing also is the core business was up as well. Overall, things are good. We have engagements with customers that will not go to production until probably late 2027 into 2028 and 2030, which are very interesting. Like our 5 nanometer S32N product, the alpha customer on that actually goes to production probably model year 2028, so they will start taking some product late 2027. The S32K5, which is our next generation 16 nanometer zonal product, is just, no better way to put it, but on fire in terms of customer engagements. But that will not turn into revenue for a couple years. One of your other questions was, are we seeing any interest in AI in the auto industry, and we are. We are seeing some in-cabin applications, which are kind of interesting, where if you sit in a car today and you have a lot of electromechanical switches, I think the vision some OEMs have is, why have you actually turn the button on for your windshield wiper? Why not just say, "Turn windshield wipers on"? There are some ideas around using large language models distilled to run inside the cabin that we are working on. That is kind of with our Kinara product. But there is nothing in revenue just yet. Okay. Yeah, maybe following up on that, you talked a little bit about what this AI car thing is. Is it simply just an LLM running inside the car? Are there other kind of attributes of what people are trying to define what this AI car is all about? I think there are, John Vinh. I have to be up front. I think it is very early days. I do not have enough of an insight to be the spokesman for it. I just know the one application I heard of is this kind of compressed or distilled LLM that the car OEMs want to own themselves, which has to be able to interpret language from around the world. Yeah. They want to be able to own that model, and they want to own the kind of, let us call it the voice box, if you will. They do not want it owned by someone else. There are some interesting ideas a couple guys are working on. That is great. Any questions? Great. You mentioned Kinara, right? I think there was, seemed like a pretty big pivot from a messaging perspective on this last earnings call, that you guys are pretty excited about physical AI. Sounds like you have got a compelling NPU from Kinara, which NXP acquired quite a few years ago. Can you just talk about the NPU that you have from Kinara and how it is differentiated? Yeah. I want to take a little step back. Kinara is not the only NPU we have. Back in 2023, we developed a smaller NPU that is embedded into our industrial microcontrollers, our Connectivity family, the MCX family, i.MX family, and it is a good small NPU. It is about 2 TOPS. Not super powerful, but gives customers the ability to start testing the water. What we have seen with those microcontrollers and processors that have that small NPU in it, in 2025, they made up about 6% of our total industrial IoT processors. In 2026, it looks like it will be about 15%. Clearly the trajectory is up. What we are seeing when we talk to customers is they are trying to future-proof their systems. That is on the kind of integrated NPU, smaller performance. The Kinara is a much higher performance. It is about a 40 TOPS device today. The way it works is the Kinara device has to slave off an application processor, in our case, the i.MX. The i.MX views the Kinara NPU as a compute resource, and you can gang up to three on one i.MX, and so there is good ASP uplift. But also from a customer perspective, they can scale their performance as they need it. The message we are hearing is customers want to be able to run large language models that are distilled to run in a non-cloud connected environment, very much an industrial type of environment. The Kinara opportunity pipeline has been the fastest-growing pipeline we have had in the history of the company. It was $1 billion last year, actually last year. It is about $1.5 billion now. That is an opportunity pipeline. We still have to convert proof of concepts and opportunities to design wins, then design wins to revenue. But it is a pretty good trend early on. Yep. You seem pretty excited about physical AI. When you look at the physical AI TAM, what is the most exciting thing to you guys about physical AI? You know what? Initially, when we started talking about it, I thought it was going to be all about industrial. I thought that would be the focus of it, and then we started really looking at that opportunity funnel. It is both industrial and automotive. Now, they both have different cadences. The industrial cadence can be 18 to 24 months from an opportunity to maybe early revenues. Automotive is your usual 2 to 3 years, so they have different cadences. Got it. You also talked about, as you think about physical AI, that there are potentially full stack opportunities with software. Can you talk about that opportunity Yes. With the software and your ability to monetize software going forward? The monetizing software is very much something we are looking at inside automotive with our CoreRide platform, right? Remember, we bought a company called TTTech Auto, and what they brought to NXP was about 1,000 very skilled security, functional safety auto engineers. Basically, it was a make versus buy. We knew we needed more software resources, and so we acquired the asset, and they are helping us develop the CoreRide product. Their middleware product is called MotionWise, and it is doing well, but it is early days. We do not have a similar type holistic product in industrial. We have a development environment for NPU development, for physical AI development called eIQ. We are going to invest more there. One of the challenges we have is the ability to create semi-automatic model distillation. Right now, when we take a large language model, there is a lot of hand-holding for specific customers. That's great, but when you look at the industrial market, it's tens of thousands of customers. You can't hand-hold every model distillation. We're investing on how we evolve that model compilation, if you will, and that's something we're investing in pretty heavily right now. In the industrial markets, it sounds like most of the models that you're implementing is your customers' models, or do you have your own? Third-party models, yes. Okay, great. We're not developing the models ourself, right? Maybe we can talk about data center, right? Obviously, really exciting growth area for you. It's going to double for you to $500 million this year. I think you talked about kind of where you participate. I think you mentioned top-of-rack, switch controls, retimers, monitoring control security. Maybe you could talk about where are you investing in this area, and are there other opportunities you see to expand your footprint beyond what it is today? Yeah, great. Data center? Yeah. John, when we look at the data center, kind of two halves of one story. On the one half, first, take one quick step back. All we focus on in the data center is control plane management. We are not in the data plane, we are not in the power delivery to the power of the data centers. We are really in a control plane application. There are really two halves to that. On the one half is control plane switches. That is our Layerscape family. It is a 16-nanometer family. It is 16 Arm cores with a very, very heavy duty Ethernet switch in it, and it has gotten good traction with a small number of hyperscalers. We sell two directly. We won these designs a number of years ago, and like all design wins, after a period of time, you start to say, "Are these getting stale? They were not going to revenue." All of a sudden, they start to ramp very heavily. That business is about half of our data center business today, and we are going to invest. We have talked about this on our most recent call. We are investing in a next generation family. There is kind of an interesting story here. We have had the Layerscape family since we have merged with Freescale, and it was a 16-nanometer family. We moved some of that IP into automotive to do the S32 family. It is some of the networking IP. We built that family at 5 nanometers. We are now taking some of that IP at 5 nanometer and bringing it back into the data center, some of the fundamental switch fabrics and cores and things like that. That is something you are going to see at NXP more, is not so much a siloed development model, but a leveraging R&D across end markets. We are investing in next generation product, at 5 nanometers. It probably samples sometime in 2027, ramps to production maybe 2028 and beyond. We think if the product rolls out the way we think it should, it should open the SAM for us with other hyperscalers. That is our goal. On the other side of the coin is the board management control, and that is a more broader-based business. We sell to people like the ecosystem players, like NVIDIA. We are working with the server ODMs in Taiwan. We work with other hyperscalers. It is a broader type of business. What we do there is board management control, controlling root of trust security, controlling power, controlling cooling at a card level. It is very similar to what we do in industrial already. It is just not really a new market for us, it is just different application of a similar type of functionality. We think that will continue to grow. I think there also, and you will hear this more and more from us, there is some software investment that needs to be made. It is less hardware problem nowadays for us. It is more software, like board management controls, so BMC software and things like that. Right. When you think about your data center business today, can you give us a sense of how much of it is general purpose servers versus AI servers within that mix? Yeah, John Vinh, I am not as smart on that. I probably really couldn't. Okay. Yeah. Layerscape obviously seems to be a significant portion of your revenues. What is the competitive differentiation on Layerscape and why you win? Performance per watt is really what it is. Okay. Our main competitor there is the old Cavium product, the Octeon product that Marvell now owns, and they do a very good job. They are just a bit higher performance and also with a higher power consumption. We have a niche, right? It is a trade-off between power and performance, and that is what you will see across the portfolio in general. Great. Industrial saw pretty nice growth, almost 40% year-over-year. Can you talk about what is driving the growth there? Yeah. We have this concept of accelerated growth drivers in both auto and industrial. In the industrial side, it is three sub-portfolios. It is our newest processor families, so the MCX microcontrollers, the RT, which is kind of a hybrid product, and our i.MX 9 family. Those three families are literally on fire right now. Then they pull along things like PMICs, other analog Connectivity, and security. That is great. Really what has been driving, and it is our go to market, when we engage with an industrial customer, the first area we try to win is the processor footprint, whether it is a microcontroller or an application processor. The RT is very well respected, being very low power, but higher performance. That is our go to market. When you think about the supply chain, I think we have heard a lot of commentary out there that input costs are going up. You have talked about selective price increases. Sounds like there is a lot of just shortages out there more broadly. Are you seeing any sort of shortages out there, and in what areas? Yeah. There has been things that are tight. I think it is not on the wafer side. Our main partners for wafer supply are TSMC and GlobalFoundries, very good partners. We tend to negotiate with them in the second half of each year for the following year's requirements, and so long as we stay within that envelope of volume and mix, we are in pretty good shape. Where we are seeing costs go up are on the back end, precious metals, substrates, even third-party test and packaging. We do about 80% of our package test internally, but we do go to the open market for about 20%, and it is tight. Okay. We are seeing price ups there. Our first go-to move on inflation input costs is try to operationally digest them. We do not want to go and pass them on to our customers. There always comes a point where you just cannot squeeze any more out of that rock. What we have to do in those cases is we selectively gross up those input costs and pass them on to customers. Not a great thing. We do not like having that conversation with customers, but we do not raise prices to pad our margins. We raise prices to maintain our financial structure. Yep, makes sense. What percentage of your wafers are in-house versus outsourced? Then maybe can you give us an update on the JV and Sure. What does that mix look like once you are through the JV build out? Yeah. So today, it is about 60% outsourced, and the way you want to think about that is anything that is 90 nanometers and below, kind of bulk CMOS, we buy in the open from the foundry marketplace. Anything that is 90 nanometers and above, mixed signal, we build internally. So it is a 60/40 split. The JV in Singapore, VSMC, that will be a 55,000 wafer per month factory. We will own 40% of the output. It is a very advantageous financial model for us. When that is up and fully running, you probably can see our mix move to probably 80/20. We will never be 100% outsourced, but moving towards it quite aggressively. As Bill, our CFO, has talked about, we have three 8-inch factories internally. Most of them are fairly old, 35, 40 years old, and so we are going through the process of rationalizing our internal footprint. We want to do it judiciously with customer involvement. So we will probably do it one at a time. Maybe we will parallelize it a little bit, but the way you want to think about it, we will do it one at a time. Okay, great. Last thing for me would be on gross margins. What is the path to 60% gross margins from here? Is it mostly going to be utilization driven, or are there other puts and takes we should think about? Yeah. Our rule of thumb, John, given that we are not a pure IDM and we are not a pure foundry, is revenue's our friend. The rule of thumb we have given is for every incremental $1 billion, we can throw off 100 basis points of gross margin. You saw that in play this most recent quarter. Revenue was up about $500 million year-on-year. Gross margins were up 150. So there is always a little variation, but the model holds. Utilization is one piece, but it is only one piece of the 40% that we build internally, right? So really, revenue's our friend. I think you have heard us speak the last several quarters, we feel very confident that we can achieve our long-term targets, which puts the revenue in 2027 with $16 billion, 60% gross margin, plus or minus. That is great. All right. Great. Thank you, Jeff. Thank you, John. Hey, John, I would like to also say thank you to you. This is the 15th year I have been to this conference with John, and I appreciate it, and we have had a great relationship. Yep. Thank you. Thank you so much, Jeff. Thanks, John.