Day, thank you for standing by. Welcome to the NXP first quarter 2026 earnings conference call. I would now like to turn the conference over to Jeff Palmer, Senior Vice President of Investor Relations. Please go ahead. Thank you, Lisa. Good afternoon, everyone. Welcome to NXP Semiconductors first quarter earnings call. With me on the call today is 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 Q2 of 2026. 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 performance. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our first quarter 2026 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 Rafael. Thank you, Jeff, and good afternoon. We appreciate you joining us today. Our first quarter performance exceeded expectations with broad-based improvements across all our focus end markets, led by our company's specific growth drivers and importantly, with momentum now visibly broadening into the core of our business. What we're seeing today is the compounding result of sustained investment, disciplined execution, and deepening customer adoption across our differentiated portfolio that is increasingly well-positioned for the most durable secular trends in semiconductors, software-defined vehicles, Physical AI, and now with greater visibility than before, data center infrastructure. The remainder of 2026 is set up to be stronger than we anticipated just 90 days ago. I want to walk you through the key drivers behind that improvement. Turning to the quarter, we delivered revenue of $3.18 billion, up 12% year-over-year and seasonally down 5% sequentially. All-in markets grew year-over-year. In an aggregate, we outperformed by $31 million above the midpoint of our guidance. Our company's specific strategic growth drivers across the auto and industrial IoT end markets grew 18% year-over-year and represented roughly one-third of Q1 revenue. Our core businesses encompassing all end markets increased 10% year-over-year, underscoring that momentum is broadening beyond the strategic drivers. Non-GAAP operating margin was about 33%, 120 basis points above last year and 40 basis points above the midpoint of our guidance. Taken together, we delivered non-GAAP earnings per share of $3.05, 0.08 above the midpoint of our guidance. Turning to end market performance. In automotive, revenue was $1.78 billion, up 6% year-over-year and in line with expectations. Adjusted for the sales of the MEMS sensor business, automotive growth was 10% year-over-year. During the quarter, the growth was driven primarily by accelerating customer software-defined vehicle programs, improved electrification trends, and continued momentum in radar and connectivity. Together, the auto accelerated growth drivers contributed nearly 90% of the year-over-year growth. From a customer adoption perspective, we're seeing strong design win traction for our S32N and S32K5 products, platforms that will serve as the backbone of our automotive processing franchise for years to come. We also secured new radar awards for our imaging radar solutions, along with wins for our 10 gigabit automotive Ethernet products. These are multi-year platform commitments that expand NXP content per vehicle and deepen the structural relationship with our customers. The automotive opportunity is a long-duration compounding story. Our progress reinforces that trajectory. In Industrial IoT, revenue was $628 million, up 24% year-over-year and near the high end of our guidance. Growth was driven by our newer industrial processing solutions, including i.MX, i.MX RT, and MCX. Together, these products grew about 75% year-over-year and contributed nearly half the end market growth versus Q1 2025. Within the end market, industrial was strong, with notable strength in factory automation, data centers, and energy storage. Looking ahead, the Industrial IoT market is entering a transformative phase as physical AI moves intelligence into real-world systems and robotics. This is creating significant content growth opportunities for NXP, particularly in processing, connectivity, and security. As AI is deployed at the edge, customers need greater processing headroom to future-proof their platforms. As a result, we're seeing customers making deeper multi-generational commitments to NXP because of the strength of our AI-enabled product portfolio. I want to take a moment to speak directly about our data center exposure because this is an area that we haven't previously emphasized. In 2025, revenue related to data center applications was about $200 million, and it was reflected evenly in both our industrial IoT and communication infrastructure end markets. Based on the wafer programs now ramping, we believe this business will be north of $500 million this year with a similar end market split. We have established meaningful positions in system cooling, power supply, board management, and control plane switching applications. Across these subsystems, customers choose NXP for our processing depth and security capabilities. Based on customer engagements, we are re-reinforcing our i.MX application processor family for this opportunity, creating a durable and expanding revenue presence in data centers. With communications infrastructure, revenue was $380 million, up 21% year-over-year and at the high end of our guidance. Growth was driven by digital networking exposure to data center and continued ramps of our UCODE RFID products. Lastly, mobile revenue was $391 million, up 16% year-over-year and in line with guidance, reflecting continued strength in our secure mobile transactions franchise. Now, turning to the Q2. Our outlook is better than we anticipated 90 days ago. We are guiding Q2 revenue to $3.45 billion, up 18% year-over-year and up 8% sequentially. This sequential growth represents an acceleration of our company's specific drivers. We expect all regions and all end markets to be up year-on-year, a reflection of expanded customer adoption of our differentiated portfolio. At the midpoint, we expect the following trends in our business during Q2. Automotive is expected to be up in the low double-digit percent range year-on-year and up in the high single-digit range sequentially. Adjusted for the sales of the MEMS sensor business, our guidance implies a high 10% growth year-over-year and 10% sequentially. Industrial IoT is expected to be up in the high 30% range year-over-year and up in the high teens range sequentially, continuing the acceleration we saw in Q1. Mobile is expected to be up in the low single-digit% range year- over- year and down in the low double-digit percent range on a sequential basis. Finally, communications infrastructure and other is expected to be up in the mid 30% range versus Q2 2025 and up in the mid-teens percent range versus Q1 2026. In summary, our second quarter outlook and our growth trajectory in 2026 reflect the story of breadth, depth, and acceleration. Our company's specific growth drivers are performing as designed. Our core business is inflecting. Today, we have made the growth of our data center revenue transparent to support your understanding of our exposure to this important market. Data center revenue is ramping now, and it will more than double in 2026 from a year ago. We remain disciplined in how we invest, how we allocate capital, and how we manage the factors we can control. Our framework is unchanged. Invest for growth, pursue targeted M&A to strengthen the portfolio, return excess cash to dividends and buybacks, consistent with our long-term model. Now, I would like to pass the call to Bill for a review of financial performance. 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. Overall, our Q1 results were solid, which were led by our company-specific growth drivers across our focus and markets, reinforcing the strength of our strategic priorities. We continue to ramp our new products and see strong customer adoption and design win momentum across our latest products and solutions. This momentum reinforces the value of our long-term R&D investments and the strength of our product roadmap. In summary, revenue, gross profit, and operating profit were all better than the midpoint of guidance, and we delivered non-GAAP earnings per share of $3.05, or $0.08 better than the midpoint. Non-GAAP gross profit was $1.82 billion, with a 57.1% non-GAAP gross margin modestly above guidance, driven by solid fall through on higher revenues. Non-GAAP operating expenses were $758 million or 23.8% of revenue favorable to guidance, driven by efficiency gains. Non-GAAP operating profit was $1.05 billion, and non-GAAP operating margin was 33.1%, 40 basis points above guidance. Below the line, non-GAAP interest expense was 90 million, and taxes were 173 million. Non-controlling interest expense was 11 million, and results from equity accounted investees were a 4 million loss. Taken together, below-the-line items were 3 million unfavorable to guidance. During the quarter, stock-based compensation was 109 million, and it is excluded from our non-GAAP earnings. Turning to changes in cash, debt, and capital returns. Our balance sheet remains strong and provides flexibility to invest in our strategic priorities and hybrid manufacturing plans. We ended Q1 with 11.7 billion in total debt and 3.7 billion in cash. Cash usage during the quarter reflected debt repayments, joint venture investments, capital returns, and CapEx, partially offset by cash generation, including 878 million of proceeds from the sale of the MEMS sensor business. Net debt was 8 billion or 1.7 times adjusted EBITDA, and our adjusted EBITDA interest coverage ratio was 14.5 times. During Q1, we retired the 500 million, 5.35% tranche due in March, and after the end of the quarter, we retired the 750 million, 3.875% tranche due in June. In Q1, we returned 358 million to our owners, comprised of 256 million in dividends and 102 million in share repurchases. After quarter end, we repurchased another 32 million under our Rule 10b5-1 program. We remain committed to our long-term capital allocation strategy, balancing returns to shareholders with disciplined investments in the business to support long-term profitable growth. Turning to working capital, days of inventory were 165 days, including seven days of free builds. Receivables were 34 days and payables were 59 days, resulting in a cash conversion cycle of 140 days. Inventory levels remain aligned to support our future growth and our planned front-end factory consolidation plans. Cash flow from operations was 793 million, and net CapEx was 79 million, resulting in non-GAAP free cash flow of 714 million or 22% of revenue. From a cash deployment perspective during Q1, we continued to advance our manufacturing strategy, which supports our long-term supply resiliency. Over time, this is expected to contribute approximately 200 basis points of structural gross margin expansion once the facility is fully operational in 2028. In the quarter, we invested 385 million in VSMC, our manufacturing joint venture in Singapore. This is comprised of 189 million in long-term capacity access fees and 196 million in equity co-contributions. Overall, we are about 67% through the investment cycle for VSMC and about 30% for ESMC. For VSMC, we expect an additional 425 million in 2026. For ESMC, we expect the 2026 investments to be about 50 million. Now, turning to our expectations for Q2. We expect Q2 revenue of 3.45 billion ± 100 million. This is up 18% year-on-year and 8% sequentially. The expected first half results support our view that NXP's growth is increasingly company specific and reinforces our confidence in achieving our long-term revenue growth targets. We expect non-GAAP gross margin of 58% ± 50 basis points, up 150 basis points year-on-year and up 90 basis points sequentially. This is driven by higher revenue, product mix, and front-end utilization improvements. We expect operating expenses of 800 million ± 10 million. This reflects the $17 million annual RFID licensing fee and normal annual merit increases. At the midpoint, this results into a non-GAAP operating margin of 34.7%. Below the line, we expect non-GAAP financial expense to be approximately 92 million and our non-GAAP tax rate to be 18%. We expect non-controlling interest to be 14 million, including 4 million losses in our equity accounted investees. Stock-based compensation is expected to be approximately 107 million and is excluded from our non-GAAP guidance. This implies Q2 non-GAAP earnings per share of 3.50 at the midpoint. Turning to Q2 uses of cash, we expect CapEx to be approximately 3% of revenue. With a capacity access fee payment to VSMC of 55 million, and equity investments into VSMC of 125 million, and for ESMC, 10 million. Overall, our first half performance and expectations reinforce the durability of our financial model, driven by our company-specific growth drivers finally shining through, gross margin back to expansion mode and improved efficiency in our operating expenses. In closing, we remain confident in delivering our 2027 financial commitments, which implies double-digit revenue growth in both 2026 and 2027, gross margin expanding towards 60%+ and continued discipline in our operating expenses. I would like to now turn the call back to the operator for your questions. Thank you. As a reminder, 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. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. First question will be coming from the line of Vivek Arya of Bank of America Securities. Your line is open. Thanks for taking my question. Rafael, I was hoping that you could give us a sense for what is driving the growth in your automotive business, both kind of within China and outside of China. How much of a pricing benefit are you seeing? Because, you know, everything appears to be in kind of short supply right now, and I was wondering if NXP is seeing any benefit from the pricing side of the equation, or you think this is more just kind of company specific and these are more unit rather than pricing driven growth upside that you're seeing right now in autos? Yeah. Thank you, Vivek, for the question. I think let me tackle the question on auto because I think that we have right now is a backdrop of constant news of SAR being down and maybe people getting confused about what does it mean for us in auto business. I'll say out of the bat, like, SAR gives you how many vehicles are produced. It says nothing about semiconductor company per vehicle. Now, in this environment, our auto business at NXP is performing well. You can see from the print, in Q1 it grew 10% after new account for the sensor business, Q2 guide implies a high teens year-over-year growth on the same basis. You can see that clearly the momentum is improving. That tells you already that this is not necessarily a story about unit growth. This is a story about the transformation, the architecture transformation that is driving content growth. My answer to you is architecture-led. That's a real story, right? For us, it's a constant story that's starting to show in our numbers. The one thing I want to leave you as well is this growth is increasingly structural. What does that mean? Well, our accelerated growth drivers have been growing double digits since Q4, and that also happened in Q1, it's going to continue in Q2, and they're contributing to 90% or 90-plus% of the growth of the segment. That kind of tells you that our growth is increasingly structural. You talk about China, you talk about some of the events that says production is down, but every region in automotive is up year- over- year. Despite the sequential decline of quarter, year- on- year, we're actually growing year- over- year in every segment, and that continues into Q2. For my follow-up perhaps on the comms infrastructure segment, I think the last call you kind of broke it out, right, half, I think in your tagging products and then, you know, digital networking and RF power. Back at your Analyst Day, you had set essentially kind of a flattish outlook from 2024 to 2027. What is the right way to think about this business? How much of this do you still plan to exit? How much of this are you reinvesting in? What, what is kind of the true growth rate of your comms infrastructure business in 2026 and 2027 that we should be looking forward to versus what you thought of at the Analyst Day? Thank you. Let me answer just by stating that we're not going to change the long-term model of comms and infra, but I think your question is very valid with respect to the composition of what's in comms and infra. If you remember what I said is that this end market is going to be flat CAGR basically flat for the next three years between 2024 and 2027. We experienced a decline on close to 25% last year. We closed the year on this segment with about 50% of this revenue being tied to Secure Tagging, about a quarter of that was digital networking, and a quarter of that was RF power. You can see that the comms and infra end market is recovering primarily on the back of the strength of secure tagging. RFID is actually going up, our exposure to data centers through our digital networking products is actually rebounding. I think the composition of this segment is going to shift a little bit more into from RF power, which we are actually de-emphasizing and is going to probably start decelerating in 2037. The revenue composition is going to change from RF power more towards digital network, secure tagging is likely to stay around 50%. That's the way you should think about it. Thank you. Thank you. One moment for the next question. Our next question will be coming from the line of Ross Seymore of Deutsche Bank. Your line is open. Hi, guys. Thanks for letting me ask a question. One of the lines you said in your preamble, Rafael, as well as in your press release, was about the momentum accelerating throughout the rest of the year. Can you just talk about what that is? I'm not trying to get you to guide for the back half of the year, but just is your visibility improving? What gives you the confidence in that? How much is cyclical versus secular, those sorts of things. No, I think that is a fair question, Ross. First of all, I will kind of resonate with you. I'm not going to guide second half today, but I would say the setup has clearly improved. If you take the Q2 guide, you can probably like estimate a 50% growth in the first half of 2026 versus H2. First, sorry, H1 of this year versus first half of last year. Actually it's 18% if you adjust for sensors. Actually you can see that we're starting the year strongly. What has changed? The visibility has improved. I think what has changed, direct order book continues to strengthen. The distribution backlog continues to improve. I think we believe the momentum continues, and so we're going to stay disciplined the way we guide. The signals that we track gives us confidence the momentum of our company-specific growth drivers will continue throughout the year and is going to drive the, what we believe is going to be growth in the second half. I guess for my follow-up, thanks for breaking out the data center side. Talk a little bit about that $200 more than doubling this year. You went through a few of the drivers there, but are these new products? Is this just the rising tide of that CapEx lifting all the boats, you included, or is this a strategic area that you're targeting? Just talk a little bit about what gives you the confidence in that and how NXP is differentiated. Yeah. Maybe, Ross, I'll start by maybe explaining what is our exposure to data center, because that could be confusing. Off the bat, right, I would say we're not claiming exposure to the data plane, so no GPUs, no accelerators, no high-speed AI connectivity. Our domain is in the control plane. The way to think about it as, you know, as data center scales, the constraints are not just compute and memory, they're also power, cooling, uptime, secure controls, and I think this is where NXP plays. What are our products? Our products are layer step, networking processing for control plane networking. We have our i.MX products for board management. We have our MCUs doing root of trust or being part of the cooling system. The way to think about it is we play in the part of the system where you need high reliability and long lifecycle applications. I think this is where NXP's industrial strength portfolio is differentiated. The growth that we're anticipating from last year to this year is underpinned. I mean, these are products that they're not only designing, but they're ramping. I think this is just about it, just making sure the momentum continues into the second half. Thank you. Thank you. One moment for the next question. The next question will be coming from the line of Thomas O'Malley of Barclays. Your line is open. Right now. Just started. Hey, guys. Thanks for taking my question. Just on the channel, you guys went from nine weeks to 10 weeks, now it looks like 10 weeks to 11 weeks. Clearly the demand profile for the rest of the year is stronger. I was curious if you guys had any additional views on the channel. Do you think that you would expand it just given the stronger demand profile, or are you comfortable with it at that 11 weeks mark that you guys have kind of described in the past? Yes. In Q, this quarter, right, in Q1, we went to a lot of weeks. If you remember our guide of Q1 last quarter already reflected the one-week increase in our inventory. It was primarily to actually service what it was a much stronger demand environment. If you look at our growth in industrial IoT in Q1, it grew over 20%, and 80% of that business is serviced through distribution. You can see that we already had an idea of where the strength was going to come. Then our Q2 guide in industrial IoT, which is, again, remember, 80% of that comes from the channel, is guiding towards high 30%. So we're clearly servicing the channel. Q2 guide is based on inventory channel staying flat, staying at 11 weeks. We intend to stay in our long-term target, which is 11 weeks. Just as a follow-up on the data center side, you guys are obviously seeing gross margin benefit from volume, and you also talked about mix as well. You guys don't give specific gross margin targets on your segments, but could you maybe give us a flavor of are these new products, you know, beneficial to corporate gross margins? As that scales, should you see a tailwind from the data center business as well on the gross margin line? Thank you. Yeah. Well, hey, Tom, how are you? This is Bill. Thanks for your question. Let me address the gross margin in general and specifically your question. You know, our gross margins continue to expand, driven by the higher revenue, the product mix, and the utilization levels. Our utilization on our front end, think about the first half to be in the low 80s, and think about the H2 to be in the mid-80s. We'll get benefit from that, from the utilization levels for our gross margin. Again, all the investments we're making and servicing is all about, you know, focus on being accretive to our corporate gross margins. In these areas, and when we make investments or provide our, you know, our broad portfolio into different applications, it's extremely important that we, you know, attract value and also create value for our customers. The way to think about that, if to your question, is yes, they are very favorable to the corporate gross margins. We'll continue to drive and focus there. Lisa, we'll take the next caller. Thank you. The next question will come from the line of François-Xavier Bouvignies of UBS. Please go ahead. Thank you very much. I wanted to follow up on the maybe on the pricing dynamics. I mean, we have seen pricing increase, you know, in the industry so far since the beginning of the year. Also, you know, we have seen some reports that NXP is also involved in this pricing dynamics. You don't talk much about pricing. I think that maybe it's not that a big impact yet. Should we impact the pricing moves for the rest of the year as an upside potential if, you know, it's getting tighter? Bill, you mentioned 85, you know, in the second half of the year. Maybe you are reaching a level where maybe, you know, you could increase the pricing over time. Is that a scenario possible? Francois, let me answer the question here with the way we see. I mean, I think your question relates to inflationary costs and the impact into pricing. Pressure in terms of cost is always a challenge, and this is something that we do, we're paid to actually handle, and so we must tackle it. Our first reaction to cost increase is always to mitigate it through operational efficiency. That for us is our preferred approach. That said, in selected areas, we are seeing high input cost pressure. We are taking selectively small pricing adjustments to protect the economics of the business. The reason we haven't talked about it is because the Q2 impact is immaterial. Now, we will continue to be disciplined and protect those margins when cost inflation requires a response. We'll keep you updated if things change. Makes sense. Thank you, Rafael. Maybe the second question is on this broad-based recovery across all products and China, when you said China is also growing. Of course, when we look at Q1, the China auto car sales, at least for the domestic part, is actually down meaningfully, I mean, mid-teens percent year-over-year. Do you see as well China, you know, still strong year-over-year in Q2 and for the remainder of the year? Do you see as well some impact from that data we see for the sales of cars in China? The content is higher and offsetting. Any color on this China specifically would be great. No. Francois, I acknowledge the headlines from China, right? I think that it's been very public that the production in China was weak, primarily driven by the weakness on the internal consumption and some of the headlines that the Chinese OEMs are focusing more on export to overcome some of the challenges that are happening with the domestic market. I think the contradiction is that, and I continue to say it, is that production volatility is very small compared to content growth. China is no different than the rest of the world. It's like, I tell you, for us, China grew year-on-year in Q1. I mean, it wasn't necessarily massive, but it grew, and it continues to grow into Q2. I think that is the story, and if the story doesn't change, content growth overcomes unit volatility. Makes sense. Thank you very much. Thank you. One moment for the next question. Our next question is coming from the line of James Schneider of Goldman Sachs. Your line is open. Good afternoon, and thanks for taking my question. Given the commentary you made, and the idiosyncratic growth drivers you're seeing relative to 2026 and 2027, just wanted to clarify that you still on track to sort of deliver to your analyst day targets from 2024 out into 2027, and maybe you can confirm both the revenue and gross margin side of that. Thank you. Yes. I think the question on 2027, we were specific both in our, in our script, both Bill and I in our prepared remarks, that we are confident, and we have a conviction on the trajectory that we have with our secular growth drivers, that 2027 is achievable. I think, I think the answer is yes. We stay put with our 2027 targets. Yes. Just to add, the secular drivers, they continue to perform very, very well. We expect for the auto ones to be above our high end into Q2. Also for industrial IoT, the growth rates be above the high end of what we said for our industrial IoT growth drivers that are company-specific. That's helpful. Thank you. Relative to the data center disclosure you provided, that by all accounts appears to be at least at or potentially above the rate of data center growth for many of your analog peers. Can you maybe talk about whether there's any specific areas that are growing, sort of outgrowing the overall envelope there? Whether you plan to deliver or introduce any new products to further apply towards that opportunity? Yeah. The data center. The way to think about data center is that we are just ramping, right? Again, we're going to be focused in the control plane of the data center. The growth of that exposure to that segment is just beginning because we're just ramping. Our SAM, if you look at our SAM on the control plane, is probably growing about 10%-11% per year. We are going to outgrow the SAM because we're just ramping, and you could see, I expect that to continue to happen in 26 and 27. We are doubling down on some of the products to actually seize kind of the opportunity that we have in the current engagements. We are talking to our customers what the next generation of products is going to be. I tell you, the exposure in the data centers has about 20- 25 products. Obviously some of the higher ASP products are in the networking side, and the i.MX products for board management control. We're speaking to our customers what the next generation needs are going to be, and we're developing those products. Thank you. Thank you. One moment for the next question. Our next question is coming from the line of Matthew Prisco of Cantor Fitzgerald. Your line is open. Hey, guys. Thank you for taking the question. Maybe to kick off, can you provide a little more color on the customer ordering patterns that you've seen, what's changed over kind of the past 90 days? Have you seen any impact from memory dynamics out there or Middle East conflict, either in the order patterns today or in customer conversations? Well, the visibility on our backlog and the distributor's backlog has improved significantly, and that's what gives us the confidence that we have going into the second half of the year, that the demand is strong. Memory is always a topic, and our customers are doing everything possible to actually secure supply. This is more of a supply issue versus a price issue, because we all know what the prices are of the memory. If you look at our customers on the consumer side, they are very well-funded customers, that they have the ability to actually go get the supply they need. We haven't seen any impact in our orders, yet in industrial, IoT, and automotive, due to memory, even though memory is still a big conversation in every customer meeting that we have. Helpful. Then maybe, talking about the supply backdrop a bit, are you seeing any tightness out there impacting the business as we kind of see those tier two wafer pricing increases? Kind of while we're talking about supply, an update on VSMC or ESMC timing? Thanks. Oh, sure. Let me take that. Let me take your last question first on the timing of VSMC and ESMC. Both are on schedule. VSMC maybe. I know the tools are installed. They're going to start ramping soon. Hopefully we get up and running in 2028, where we get the expanding our structural gross margins by another 200 basis points. Related to other supply factors, yeah, supply in different parts of the supply chain are tight. We do see these inflationary costs that Rafael referred to. If we can't offset them internally from operational efficiency or productivity, we then unfortunately have to pass them along to our customers. We are starting to do that in selective areas, but trying to do that in a controlled way. If things get really tight, we'll do what we did during COVID to make sure that we protect our gross margins. We are seeing, you know, slight bottlenecks in certain parts of the supply chain. Thank you. One moment for the next question. The next question will be coming from the line of Joseph Moore of Morgan Stanley. Your line is open. Great. Thank you. I wonder if you could talk about the growth drivers in the auto space. You know, you sort of talked about seeing your business get better from that. Any, you know, is that kind of a indication of 2027 model year? I sort of think of these as five-year rolling programs. Just anything you can do to help us, you know, what's giving you the confidence to sort of call that an inflection rather than something cyclical? Let me talk about the auto growth drivers. They've become a very important part of the business now, and it's really changing the composition of the revenue in auto. The growth drivers, just to give you a sense, the growth drivers in Q1, they were north of 45% of the revenue now composition. We continue to see growth. Just to give you a sense, this is now coming from a 39 composition. I think we're going to end up the year in 2026 closer to the 50 range as opposed to the mid-40s. Because they are growing strongly, right? They are growing double digits. It's driven by the software-defined vehicle portfolio that we have. That is the strength of NXP and automotive is we have products in the processing portfolio that today don't have equivalents in the market, and they are really well-positioned for SoM architectures and central compute architecture. We expect this transition into SDV to really be a very, very strong tailwind and position NXP as the leadership in automotive. It's all driven by our SDV platform. Great. Is there anything different about that in the China market? I was sort of thinking, you know, when you build the car architecture from scratch, it's probably easier to build around software-defined vehicles than it is if you're sort of in an entrenched architecture. On the other hand, there's local suppliers and things like that. Just is the China market any different in terms of those growth drivers? It is not necessarily different in terms of the adoption of the growth drivers. I think what is different is in the speed in which they adopt the products. For instance, I would say that, let me just take an example. The S32K5, which is our 60 nanometer latest, 60 nanometer SoM product, a product with a lot of performance. We expect the K5 to go to production in China despite the fact that, you know, this product has been sampled to Western customers first. The speed in which they adopt the next generation architectures is what is different. Now, you made a comment with respect to local competitors. I think the shift in architecture is also benefiting us because at the end of the day, you will see local competitors emerge in the automotive market, and they are likely to emerge in the low end. This architectural shift to SoM central compute, it favors higher processing capabilities. It favors higher redundancy. The other thing that you have to take into account, China is moving fast to automation, to level three, level four ADAS. That also requires more redundancy, a better security, better safety. This is where I think innovation and MCUs and MPUs is going to be key to actually win in the market. We're quite excited about the transformative move that Chinese are making in architectures and the speed in which we're doing it because we have the right roadmap for them. Great. Thanks so much. Thank you. One moment for the next question. The next question will be coming from the line of Chris Caso of Wolfe Research. Please go ahead. Yes, thank you. Good evening. The first question is coming back to some of the comments you made about input costs rising. If you could talk to us about what you're seeing with regard to, you know, foundry wafer pricing now and, you know, how that gets affected as VSMC starts to ramp next year. You know, what impact is that on you? Perhaps does that provide you with some sort of an advantage if pricing does go up as VSMC ramps? Yeah, let me take that one. The way to think about the supply, VSMC services is one sort of supply, which we kind of have a little bit more control over, and why we're paying additional capacity access fees to get additional supply. That's probably more linked to some of our technologies that are mostly in-house from part of our consolidation rationalization project that we're doing. The other capacity, what we're seeing is, when you want additional, if you have surprises above what, you know, the agreements that you kind of entered in the beginning of the year, we're seeing additional charges because they may need to obviously capacity gets tight, they also may need to add new tools and so forth to help you supply. We are not, you know, from the current agreement, it is probably more upside that they charge and then can we offset that internally. If we cannot, we pass it along to our customers. Right. Understood. As a follow-up, you mentioned in your opening remarks, that, I guess you were confident still in the Analyst Day targets, and that implied double digit growth for 2026 and 2027. Obviously, 2027 is far away. I'm not sure what we should read into that. Is there, you know, any particular visibility that you have, or is this just, you know, some confidence that perhaps we finally turn the corner and, you know, if that's the case, we get a good growth year next year? Not sure how much we should read into those comments. Well, let me address that because I think it's a question on the model, and why we're doubling down on basically our commitments in 2027, which will imply, just doing the math, a particular growth rate in 2026 and 2027. That conviction of revenue targets emanates from the traction that we have in our accelerated growth drivers and the traction that we have now with data center and the traction that we show you in both industrial and IoT. I think you can get there through different contributions by the different end markets, and some segments are going to be in the low end of the range, some segments are going to be in the high end of the range. Our targets for us in 2027, they seem to be within reach. Now, just to be honest, internally in NXP, we don't see 2027 as a destination, of course, it's just a milestone. If you were to look into 2027, what's important, obviously, you know, from year from a revenue perspective is why we have the conviction, but for us internally is how we close the year and enter 2028 with momentum in our focus markets. The progress we make in our portfolio, the traction that we have on becoming mission critical to our customers. I think the conviction that we have is the progress we're making right now in 2026 and last year with the adoption of our customers in our new products, I think makes our view on this path towards 2027 very constructive. Yeah. Maybe I just add just on the secular growth drivers. You know, obviously, we have visibility next quarter, the quarter after, and the following quarter. The order intake on those, you know, secular growth drivers for the company specific are all at high end or above of what we said during Investor Day. Really a lot of company specific growth that's given us confidence behind it because again, it's a content, it's a ramp of product, design wins that have won and they're, you know, ramping now. Since they're tracking to, you know, at the high end or above the high end of the model that we provided, we feel very confident that this will continue because of the adoption of our solutions. Thank you. Thank you. One moment for the next question. Our next question is coming from the line of Gary Mobley of Loop Capital. Your line is open. Hi, guys. Thanks for taking my question. I was hoping that you can give us an update on the integration of Kinara, Aviva, TTTech, how that's progressing, whether it relate to, you know, enhancements to existing roadmaps or, you know, full commercialization on a independent basis? Any update there would be helpful. Yes, I'll give you an update. This is Rafael. I think let's start with TTTech. I think great engineering organization. They have been redeployed now to our internal efforts to do S32 CoreRide. This is a very important kind of initiative that we have. We expect to sample with customers in Q3, this Sono reference design, the Sono K5 reference design that involves not only the K5, but other MCUs and our 48 volt architecture. We're doing it both in the east and the west. I think we have high single-digit number of customers engaged in POC, so it's quite exciting. We do expect that this effort is going to accelerate the K5 adoption into 2027. Aviva Links I think is a great platform that we got on SerDes platform. This is an open standard, very important for SDVs, given the fact that the sensors and displays are multiplying in next generation vehicles, and all these are connected to SerDes. I think companies are looking for an open platform versus the proprietary solutions they have today. We have customer awards now, and we expect to be in production with them in 2028. This is a new SAM for us. This is a new market that we haven't entered. In the past is there were two very entrenched, obviously competitors there. Now with this open standard allows NXP to come and compete and copete with great technology. The last one on Kinara. Kinara, what a great acquisition, directly in the middle of our North Star, which is becoming intelligent systems at the edge. Kinara, it's been a perfect combination for our i.MX platform. That is our application processor. It allows us to really engage with customer in ways that we couldn't have done in the past, just because we didn't have the capability, we didn't even have the credibility on it. Today, sales funnel is quite large, literally over $1 billion of sales funnel. Obviously there's a lot of things to go and chase. Our customer reaction is really good. We have, you know, I think we have, like, more than 30 POCs going on, we expect again, we are on track to have some revenue of combination of the Kinara asset with i.MX in the second half of 2027 and 2028. The other important thing is that we're starting to integrate the Kinara IP already into our industrial processors and our auto processors. This is monolithic integration of the IP. This is also going to be part of our next generation processing for our auto and industrial products. Appreciate it, Rafael. I want to ask really more of a direct question on your comfort to the 2027 targets. We all know what the revenue would materialize to at 15.8 billion if you hit the growth targets as laid out, you know, November 2024. But we've had, of course, the divestiture of the MEMS sensor business. Should we think about the endpoint or I guess the milestone for 2027 is about 15.4 billion in revenue? Hey Gary, let me take that modeling question. First in your calculation, remember you've got to back off the sale of the MEMS business. That's just a housekeeping item. I think of what you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. you've heard from both Rafael and Bill today is we are standing solidly behind our long-term growth rates. At the total company level, that means we're going to hit 6%-10% total company. I know you guys know how to do modeling better than anybody. You can kind of back into what that means for 2026 and 2027. We're going to leave that exercise to you. We are not backing away from those targets. I would say the thing to take away from maybe some of the comments from both Bill and Rafael is the design wins we have. They're starting to go into production. Our clarity and our belief in achieving those targets is increasing daily. Thanks, Jeff. Yep, sure. No problem. One moment for the next question. The next question will be coming from the line of Quinn Bolton of Needham & Company Your line is open. Hey, guys. Thanks for taking my question. I guess I wanted to come back to the IIoT business, and if I've got my numbers right, it looks like that business will hit a record revenue level in the second quarter. How much of that is just broad-based industrial end market recovery versus your company's specific growth drivers? Then I've got a quick follow-up for Bill. Let me jump on that one. I think you're right. I think the strength of well, IoT, industrial IoT, for us, started showing strength in Q3 last year. We started to grow year-over-year, and that growth continued in Q4, continued in Q1 with a 20-plus% range, and that will guide into to the high 30s. We said it clearly, the strength is broad-based. It's all geographical regions and all markets. We have certain products right now that are driving the growth. As we said, half of that growth came from new industrial processing portfolio. That is accelerated secular growth drivers. What is also very encouraging is that we're seeing the core part of industrial IoT also growing. This is a part of the revenue of the last year decline now is back into growth. In Q1, it grew 15% year-over-year, you can see that the rest of the portfolio is also recovering. It's broad-based now. It's also not only the accelerated growth drivers performing, but the core part of our business in Industrial IoT is coming back. That kind of tells you hopefully a little bit of flavor of the strength of the momentum that we have going into Q2 and likely carry in the second half of the year. Yeah, maybe I'll just put a number there. The way to think about industrial IoT, the secular growth drivers are representing about 37%, and they're growing north of 40%-50% kind of range, just to give you a feel. Great. Thank you. For Bill, you've talked about the 200 basis points that you get from the ramp of ESMC and insourcing or moving production from 200 millimeter to 300 millimeter. Can you give us a sense, you know, as that facility comes online, how quickly do you get that benefit? Does it, you know, can you see it all in one year, or does it take several years to achieve the full 200 basis points? Yeah, it's a great question. Typically, we should start to see it when the factory is fully utilized, which is probably a good utilization number for that type of factory runs 90%, 95%. It will take several quarters to get that full benefit, depending on the ramp, of course. My guess is you'll probably get a partial of it for sure in 2028. Will you get the full amount? Not sure. It all depends on the timing of the ramp, but we're pushing strong, and we want to get it as well and drive it. Excellent. Thank you. Thank you. Alicia, I think that'll be our last question, and I think we'll pass it back to Rafael to conclude the call today. Thank you, everyone, for joining us today and for your thoughtful questions. In closing, I would like to leave you with three takeaways. First, NXP growth is driven by leadership in SDV and physical AI and industrial IoT. Second, our company's specific growth drivers are performing as designed. Lastly, we're reaffirming our Analyst Day commitments, which implies double-digit growth in both 2026 and 2027. This quarter reaffirms the strength of the execution to our strategy. We remain committed to disciplined investment, margin expansion, and portfolio optimizations to deliver sustainable long-term value for our shareholders. Thank you. Thank you. This does conclude today's program. Thank you all for joining. You may now disconnect.