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NXP Semiconductors N.V.  (NASDAQ:NXPI)
Q1 2019 Earnings Call
April 30, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2019 NXP Semiconductors Earnings Conference call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr. Jeff Palmer, Vice President of Investor Relations. Sir, you may begin.

Jeffy palmer -- Vice President of Investor Relations

Thanks Demetrius and good morning, everyone. Welcome to the NXP Semiconductors First Quarter 2019 Earnings Call. With me on the call today is Rick Clemmer, NXP CEO; Kurt Sievers, NXP's President; and Peter Kelly, our CFO. If you've not obtained a copy of our earnings press release, it can be found at our company website under Investor Relations section at nxp.com. This call is being recorded and will be available for replay from our corporate website. Our call today 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 financial results for the second quarter of 2019. Please be reminded that 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, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact of ADAS purchase price accounting, restructuring, stock-based compensation, impairment, merger-related cost and other charges that are 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 first quarter 2019 earnings press release, which will be furnished to the SEC on Form 6-K and is available on NXP's website in the Investor Relations section at nxp.com. Now I'd like to turn the call over to Rick

Rick Clemmer -- CEO

Thanks, Jeff, for that enlighting opening, and welcome, everyone, to our conference call of the day. Today, we're going to take a new approach to our prepared remarks. I'll start off and provide some longer-term strategic commentary, then Kurt Sievers, who is the President of the company, will review the end-market revenue details of Q1 and provide some revenue guidance for Q2. And finally, Peter Kelly will review the financial details of the quarter and expectations for Q2. Now for all of those that had followed the company for a while know we've spent a lot of our efforts assuring that our product portfolio is aligned to the long-term customer needs in our chosen application segments. We believe that if we consistently make the right product development decisions this will result in very sticky high relative market share positions and true leadership, which should allow us to outgrow the market by 1.5 times. If we look at a few of the major themes from other September 2018 Analyst Day and the progress we've achieved they clearly reflect the positive traction. First, our automated sales was just over $4.5 billion in 2018, and we continue to be the #1 ranked worldwide automotive semiconductor supplier. We have gained share in the strategic areas of auto processing, ADAS/RADAR solutions and digital clusters.

According to strategic -- strategy analytics, NXP is the leading supplier of both automotive processing and infotainment applications processors. 30% of our auto business is focused on high-growth sectors like ADAS and electrification, which has grown at nearly 40% in compounded growth rate since 2015 and which we expect to continue to grow at 25% to 30% compounded rate growth rate as the business becomes more material in size. The other 70% of our automotive business represents a very large and entrenched core business with hot barriers to entry. We anticipate our core business will grow at a modest premium to the overall auto semiconductor market. Our deep customer relationships with both Tier 1 suppliers as well as the OEMs enable us to gain long-term insights into the requirements. It is these relationships, combined with our world-class IP, which has allowed us to expand in new high-growth application solutions. As an example, our ADAS business, which currently represents about 10% of our total automotive revenue, has grown at over 50% compounded annual growth rate since 2015. In a few short years, we've emerged as the #1 supplier for the complete RADAR subsystem, including the 77-gigahertz front-end transceivers. The ASIL-D-compliant back-end processing engine, power management and the high-speed interconnect, all tied together with our software. Based on design wins, we are currently shipping and designs we have been awarded with major OEMs, we see the business continuing to grow in the high 20% range through 2021 and beyond. We believe this growth rate is about 1.4x faster than the overall ADAS/RADAR market, which is still in its relative infancy.

Another new auto business we're very excited about is our battery management system, our BMS products for electric power trains, which we've learned from customers, particularly the actual battery manufacturers, is the need to increase efficiency and resulting range of the battery subsystem. To be able to achieve that requires the ability to monitor and take real-time action on the health of the battery on a sale-by-sale basis. What is required is the combination of precision analog capability, ASIL-D functional safety expertise and deep automotive processor know-how. Our team has developed a truly unique solution, which combines these capabilities. While the business is relatively small today at about $50 million on an annualized run-rate basis, it is doubled over the last year. As more global auto OEMs expand our electric vehicle offerings, we're actively engaged winning designs and anticipate emerging in a leadership position versus current existing suppliers. We think the BMS market is a subset of the overall power control market, we expand about $800 million in 2021 at about 30% compounded growth rate. If we expand the designs we have been awarded and are beginning to ship, we think this business could easily be several hundreds million dollars of revenue in 2021.

Now looking at our Industrial and IoT business, which is about $1.8 billion in 2018, it is primarily made up of our broad micro controllers and application processor portfolios, along with some analog attach. This is a business, which is levered to the secular trends of the increased processing and security requirements of the Edge and IoT market. NXP is in a unique position to address the market demands for higher performance micro controllers, which are combined with functional, audiovisual capabilities and features normally found in applications processors. We term this the crossover processing market. We see the addressable market for processors growing about -- from about $270 million in 2018 to just under $1.5 billion by 2023 or 40% 5-year compounded growth rate. Seeing great traction for this class of products, which range from our RT, ULP, and MScale LP families of processors. In the application span from the secure AI-powered factory automation and building the in the industrial space to home audio solutions enabling full Dolby Atmos support down to high volumes, smart home and ultra low power variable type devices.

To be specific, we just received our Dolby 1.6 Atmos certification last week based on the multi-core crossover processor as opposed to the previous solutions based on multi-dSPs. We're seeing very good early traction on these families of processors and anticipate our crossover business will grow into a multi-hundred billion dollar business by 2022. These are just 3 exciting product areas that we believe will differentiate NXP in the coming years. Clearly, our strategy is positive results enabled us to aggressively return capital. Since the termination of the Qualcomm transaction through today, we have aggressively reduced the total number of shares outstanding by approximately 65 million shares or about 19% of the float and returned over $6 billion to our shareholders. A testament to the strong free cash flow of our business that our business creates based on our long-term strategic decisions.

I'd like now to pass the call over to Kurt to discuss the results of the current quarter.

Kurt Sievers -- President

Thanks, Rick. And I'm glad to be able to talk to all of you today. Overall, Q1 results were just above the midpoint of our guidance, as NXP delivered revenue of $2.1 billion. However, due to a richer sales mix, combined with good expense control, we've successfully delivered profitability toward the higher end of our guidance range. Looking forward, our second quarter guidance reflects the successful design win momentum and traction, which we have achieved with our customers. However, while we continue to believe the demand environment in the second half of 2019 should improve versus the first half, the macroeconomic environment is still uncertain, especially in China. Let me turn to the Q1 trends in the end markets. Automotive: Revenue was $1.04 billion, down 8% year-on-year, in line with our guidance. It was a challenging quarter given the macro environment, especially in China. All major product categories declined as expected, except for revenue from our ADAS solutions, which were up double digits versus the same period from a year ago. A continued reflection of the strong customer traction of our solutions in that space.

In Industrial and IoT, revenue was $368 million, down 14% year-on-year. This was below our expectations as the demand for general-purpose microcontroller products in the broad-based China market continues to be very weak. Remember, this portion of our business is very dependent on thousands of smaller customers, service through distribution, who appear to be particularly affected by the U.S./China trade tensions. Let me turn to mobile. Revenue was $241 million, down 9% year-on-year better than our expectations. Overall, we experienced normal seasonality in this market. Yet, as we predicted at our Analyst Day in September 2018, we're beginning to see the attach rate of mobile transaction solutions with the broader set of customers accelerate. In the premium smartphone market, we did see reduced demand for custom interface products. Lastly, communications infrastructure and other revenue was $449 million, up 10% year-on-year, with our RF Power Solutions up a strong double-digit versus the year ago period. We are currently seeing strong order rates for both our massive MIMO and high-power, single-channel RF power amplifiers. That demand is broad-based across the spectrum of global base station OEMs. Based on our customer conversations, most believe 2020 will be the big year for the 5G base station infrastructure build outs, especially in China. From a product perspective, we think this translates into a phased build-out approach with sub-6 gigahertz products driving the early portion of the 5G cycle. And then, in 2021 and 2022, we will see carriers begin to deploy high-frequency millimeter-wave product. In digital networking, we continue to see stabilization and design win traction for the Layerscape family of multi-core ARM processors, which is positive, so revenue contribution is just beginning.

Now turning to our expectations for quarter 2. We currently do anticipate total revenue will increase in the range of up 3% to 7% sequentially, reflecting improved order rates associated with company-specific products. At the midpoint of our range, this is an increase of 5% sequentially or $2.2 billion. From a year-over-year perspective, this represents a decline of 4% versus the same period a year ago, of which 2% is the elimination of the MSA versus the year ago period. At the midpoint, we the anticipate the following sequential trends in our businesses: automotive is expected to be essentially flat; industrial and IoT is expected to be up in the mid single digit range on a percentage basis; mobile is expected to be up in the low-teens range on the percentage basis; and lastly, communication infrastructure and other is expected to be up about 10%.

Now I would like to pass the call to Peter for a review of our financial performance. Peter?

Peter Kelly -- Executive Vice President and CFO

Thank you, Kurt, and good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during the quarter and provided our revenue outlook for Q2, I'll move to the financial highlights. In summary, our first quarter revenue performance was just above the midpoint of guidance and combined with richer sales mix and good expense control, we delivered better-than-anticipated non-GAAP operating profit. Focusing on the details of Q1. Total revenue was $2.09 billion, down 8% year-on-year, of which 2% was the elimination of the MSA versus the year ago period. We generated $1.1 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 52.7%, down 20 basis points year-on-year, but 40 basis above the midpoint of guidance given the better mix. Total non-GAAP operating expenses were $547 million, down $37 million year-on-year and a $4 million from the fourth quarter due to bonus expenses. This was $3 million below the midpoint of our guidance. From a total operating profit perspective, non-GAAP operating profit was $559 million and non-GAAP operating margin was 26.7%, down 50 basis points year-on-year despite $175 million drop in revenue over the same period. Our interest expense was $61 million, noncontrolling interest was $5 million and cash taxes for ongoing operations were $17 million, all modestly better than the midpoint of guidance. Stock-based compensation, which is not included in our non-GAAP earnings, was $86 million.

Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of Q1 was $7.34 billion, essentially flat sequentially. Cash was $2.19 billion, and net debt was $5.15 billion. We exited the quarter with a trailing 12-month adjusted EBITDA of $3.11 billion and our ratio of net debt to trailing 12-month adjusted EBITDA at the end of Q1 was 1.65x, and our non-GAAP interest coverage was 9x. Our liquidity is excellent, and our balance sheet continues to be very strong. During the first quarter, we returned $788 million to shareholders, as we brought about 8.5 million shares for $715 million and paid $73 million in cash dividends. Turning to working capital metrics. Days of inventory was 113 days, an increase of 11 days sequentially, although inventory on a dollar basis declined $38 million. We continue to aggressively manage our distribution channel and inventory in the channel continues to be a very healthy 3.4 months, in line with our long-term targets. Days receivable were 35 days, an increase of 5 days sequentially and days payable were 74, a decrease of 6 days versus the prior quarter. Taken together, our cash conversion cycle was 74 days, a deterioration of 22 days versus the prior quarter due to lower sales. Cash flow from operations was $296 million and net CapEx was $144 million, resulting in free cash flow of $152 million.

Turning to our expectations for the second quarter. As Kurt mentioned, we anticipate Q2 revenue to be about $2.2 billion, plus or minus $50 million. At the midpoint, this is up 5% sequentially, and we expect non-GAAP gross margin to be about 53.3%, plus or minus 50 basis points. Operating expenses are expected to be about $553 million, plus or minus about $10 million. And taken together, we see non-GAAP operating margin to be about 28%, plus or minus about 60 basis points. We estimate interest expense to be about $64 million and anticipate cash tax related to ongoing operations to be about $38 million. Noncontrolling interest will be about $6 million, a reflection of our reduced loading in SSMC. I would like to provide an update on our share repurchase program. As previously mentioned, during the third quarter we brought back approximately 8.5 million shares at a cost of $715 million. Since March 31, we have repurchased an additional 2.5 million shares at a cost of about $252 million under a 10b-5 program. We suggest that for modeling purposes, you use an average share count for Q2 of 287 million.

Finally, I have some closing comments I'd like to make. As Rick highlighted, NXP has multiple unique drivers of growth, which will play out over the coming years. We see our product portfolio as ideally positioned to address multiple secular market trends from the evolution of next-generation automobiles, all the way to securely connected Edge and IoT devices. As Kurt pointed out, our revenue for the first quarter was slightly better than guidance with a richer sales mix, combined with good expense control, taken together resulted in a better than guided non-GAAP operating margin. And while our gross margin improved in Q1 and we anticipate an improvement in Q2, we still have work to do to achieve our long-term targets, but we continue to anticipate achieving our intermediate target of 55% exiting the fourth quarter of 2019. We continue to believe our cash tax rate related to ongoing operations for 2019 should be about 5%. We continue to be committed to retaining all excess free cash flow to of our owners and we currently have approximately 3.7 million shares remaining under the current authorization.

So with that, I'd now like to turn it back to the operator for any questions you might have.

Questions and Answers:

Operator

(Operator Instructions) And the first question comes from John Spitzer with Credit Suisse. You may proceed.

John Pitzer -- Credit Suisse -- Analyst

Yeah, guys thanks. Let me ask a question, I appreciate all the detail. I wanted to ask a little bit about the industrial IoT segment and the expectation for the calendar second quarter. When you're coming off of Q1 where you modestly missed your expectations, but you're guiding it up sort of mid-single digit, I'm wondering if you can help us understand from a bottoms-up what perspective, just given all amount of uncertainty why the confidence level of sequential growth? And as you answer that question, can you remind us what normal seasonality for that business in Q2?

Peter Kelly -- Executive Vice President and CFO

Well, we're not really going to guide the second half of the year John. The first one in terms of Q2, as always, our revenue is based on our backlog and what we believe we will book. And certainly, the industrial market, particularly in China, has been difficult in Q1 and Q2. In regard to your third question that what normal seasonality. I'd say, 2019, you throw normal seasonality out the window, really. It's really hard to say what might happen. Certainly, as we thought, Q2 is stronger than Q1 and the second half we think will likely be stronger than the first half, but beyond that, I don't Rick, Kurt, would you say much more beyond that?

Rick Clemmer -- CEO

The key, John, is the specific design wins we have that would drive our revenue increase, it's not about an expectation or rebound in the marketplace, but more kind of a stabilization. And frankly, China continues to be, which is clearly a large market for us from an industrial perspective, continues to be somewhat frozen. Our distributors or partners are becoming somewhat encouraged but the end customers are still quite reticent based on the trade uncertainty and the general environment about what's going to take place. But what's really giving us the confidence in the outlook that we have is the specific customer design wins with the ramp up of those new designs that will allow us to outperform the general market.

Peter Kelly -- Executive Vice President and CFO

One thing that was interesting John is, just going through Rick's comment there on what our distribution partners are thinking, we probably could have shipped about another $42 million worth of product at the end of the quarter in terms of what distribution was asking for, but we were not seeing them shipping out to their end customers. So we've not allowed them to take that product yet. So it is interesting that what we see a little bit of strength in PLA, but we haven't seen the additional or more importantly the strength in POS yet.

John Pitzer -- Credit Suisse -- Analyst

That's helpful. And then maybe for my follow, lot of conversation about China/U.S. trade relations, I'm wondering relative to orders if you can talk a little bit more about U.S., Europe and what's going on out around potential tariffs around emissions and as you look at your guidance for Q2 of kind of flat revenue growth Q-on-Q, how you're thinking about sort of overall industry production versus company-specific drivers of NXP like the RADAR substance.

Kurt Sievers -- President

Let me take this. When we think about the car production, we really look at the forecast of IHF mainly, which has iterated bit since our last call. There, I think, we talked about like minus 0.4 for the global production in 2019 over '18. By now the IHS forecast is minus 0.9%, so almost minus 1%, which clearly did not have a great start in China. So the China Q1 production number in 2019 was actually minus 13%. Now if you look at the forecast for the full year being minus 0.9%, only in close, that means IHS, obviously, does project rebounds in both Europe and China in the second half of the year. And that's largely what we take as a basis for all our forecast. So with that we also believe our businesses going to be stronger in the second half of the year relative to the first half of the year.

And yes, you were rightfully pointing to best part of our business, which is largely independent of that most prominent factor, certainly the RADAR business. We did say it in the prepared notes earlier, we are on track here in Q1 and we see this also for Q2 and the rest of the year to be in the high 20% range in year-on-year growth. So 25% to 30% growth in RADAR, which is a perfect continuation of the trends, which we've also seen over the past years already.

John Pitzer -- Credit Suisse -- Analyst

Thanks

Operator

And our next question comes from William Stein with SunTrust. You may proceed.

Will Stein -- SunTrust -- Analyst

Thanks for taking my questions. Also on the demand side, I think with regard to your Q2 guidance, I think, both your infrastructure and handset business look like they're being guided above seasonality. Can you dig a little bit into the trend, especially in what will in each of them really?

Rick Clemmer -- CEO

So I think, the key on the communication side is really some of the early deployment of 5G, which will clearly being a near-term acceleration and then we think that we go through a little of a low for a period for we won't see that continued growth. But clearly, very positive for us in Q2 and a positive contribution. In mobile, it really comes down to the continued deployment of the mobile wallet. And the applications that we've been referring to in the past, we're beginning to see that come to fruition with developing countries and new customers really offering opportunities to drive the growth rate that we're talking about for Q2.

Kurt Sievers -- President

Let me add here. This really falls in line with the longer-term trends, which we called it earlier. So from an attach rate of about 30% last year, we see the mobile wallet attach rate going to 50% in 2021 and that's well on track. And that's actually behind the growth forecast for Q2 in mobile.

Will Stein -- SunTrust -- Analyst

If I can just dig into one of those for Rick, I think, you mentioned something about the getting new design wins. That business has been challenged for some time. Is this sort of a turnaround we should expect here with growth going forward and sort of a reacceleration of business?

Rick Clemmer -- CEO

Well, we didn't try to say that. What we did say was that the decline we think is under control. I think we have been getting design wins to be fair through this period of time it's just the revenue ramp associated with those had been delayed. And what we are now beginning to see is some of the revenue increases from those new design wins growing faster than the declines of the older legacy business, which created so much pressure over last few years, as you're well aware. We're encouraged about our DN business and the design wins we had though and the full engagement and the opportunity to participate in a number of new areas where we really operate differentiated technology with some of our software-defined radio technology that gives our customers the ability to expand into different innovative networking applications.

Will Stein -- SunTrust -- Analyst

Thanks for the detail.

Rick Clemmer -- CEO

Thanks Will.

Operator

And our next question comes from Stacy Rasgon with Bernstein Research. You may proceed.

Stacy Rasgon -- Bernstein Research -- Analyst

Hi guys thanks for taking my questions. So the first one, one on the hit on margins and suggest to holding to the exit rate of 55%. Can you just talk a little bit growth margin drivers, I guess, in Q2 and then through the rest of the year that's going to get you there as well as your thoughts on OpEx and operating margins as we go through the rest of the year?

Peter Kelly -- Executive Vice President and CFO

Well, on gross margin, I just go back to exactly what I said to last year because -- last quarter, because, I think, that best illustrates where we are on flat volume from a flat revenue from Q4 '18 to Q4 '19. It's basically 200 basis points of self-help and it's not any one single individual item. We've got a bunch of things going on in test times and yields. And there's a bunch of, in fact, I guess, the largest part of it is savings that we have tied up with supplier pricing. So that, that really hasn't changed at all. And in terms of OpEx, what we said to you, you should think whatever your number is for the full year, take 16% of that for an annual R&D number and 7.5% for an SG&A number.

And I guess, given now that we've given you the Q2 number a portion, a difference of over Q3 and Q4 based on how you think revenue is happening. Within OpEx, the big changes you see from quarter-to-quarter, typically, more around what we're hearing from a mask perspective than anything else. Right now, we're not really hiring. Clearly, there are some critical replacements we put in place, but we're trying to keep a cap on our cost. And I think what you saw in Q2 is we're able to manage our expense pretty well actually.

Rick Clemmer -- CEO

I think that's really important, Stacy. As we look at it with the current environment we see, we're keeping our expenses completely under control and keeping them up fairly constrained. We clearly will have investments that we need to ramp up when we see a robust return to the marketplace, but clearly, that's not something that we're in the line of sight that we have today. As we talked about the ramp up we see in revenue is more customer specific and design wins specific than the general market improvement.

Stacy Rasgon -- Bernstein Research -- Analyst

Got it. My follow-up, I want to ask about the disties channel. So I'm glad to see that you guys have managed it tightly, but I don't understand you said that this channel could have taken an additional $42 million of revenue that you chose not to ship, but how do I reconcile that with your comments on the general uncertainty in cautioning the market? Why would the channel be looking to take additional inventory if the environment is so uncertain unless that has some implications on how they are truly seeing-how they are truly viewing the outlook through the second half...

Rick Clemmer -- CEO

Stacy, I don't think you should read too much into that. I think the point is we had the orders from disties that they have the confidence that they will need the requirements that would have driven up $40 million additional revenue for us. But without seeing the pickup in actual shipments out from the distributors, we chose not to ship that in because that would have obviously increased our months of inventory and we're very focused on maintaining that around the 2.4% range.

I think the distributors are more encouraged than I'm seeing them in a few months, but it's not really materializing into shipments out to their customers in a significant fashion. So I think it's more of a general indicator, but it clearly hasn't resulted in improved business yet.

Stacy Rasgon -- Bernstein Research -- Analyst

I guess, what I'm asking is what you think is driving that sort of improved outlook from them, is that improved confidence from them? Because you don't seem to be seeing it, most of the players don't seem to be seeing it. Is it just a hope in general that the second is half better or what?

Rick Clemmer -- CEO

I think it just a business planning. As they go through it and look at what their plans are they placed orders that would have driven further increase in our shipments into distribution, which obviously we chose not to do based on the impact it would have had on inventory levels.

Kurt Sievers -- President

To be clear, it wasn't one order from one distributor, it was across the distribution.

Stacy Rasgon -- Bernstein Research -- Analyst

Got it. Okay. Thank you guys appreciate it.

Rick Clemmer -- CEO

Thank you.

Operator

And our next question comes from Vivek Arya with Bank of America Merrill Lynch. You may proceed.

Vivek Arya -- Bank of America -- Analyst

Thanks for taking my question. The first one for Rick or Kurt. The Q2 sales outlook is among the best that we've seen in your peer group who were all complaining about China weakness, which is kind of surprising because my sense is that NXP is perhaps relatively more exposed to that market. So maybe Rick, could you give us some sense of trends you're seeing? I think you mentioned China is kind of frozen, so the trend you're seeing in Q2, is that a measure of your own company-specific design win activity? Or are you just seeing better trends outside of China? Can you just give us some quantification on what you're seeing in and outside of China?

Rick Clemmer -- CEO

Yes. So I think it's really important to understand that our guidance is based on company-specific design wins that we have with customers that give us the confidence about our Q2 revenue outlook. If you just look at the market, the market in China continues to be pretty frozen. We don't see a robust recovery coming yet. There's still a great deal of concern related to the trade activity and the uncertainty associated with it. I think, if you look at Europe,

Europe has been kind of OK, but it's actually maybe even softened a little bit recently. It's not clearly a robust improvement in U.S., continues to operate quite fine. So I think, all of that comes together, but clearly, our revenue increases based on company-specific design wins, which we've been working on a long period of time and we're now beginning to see the results of that design activity that we have had.

Vivek Arya -- Bank of America -- Analyst

All right. And so my follow-up on the automotive business, the revenues on a quarterly basis have been in the $1 billion -- $1.1 billion range for the last 2 years now. I'm curious at what point do you think all the new activities you mentioned, whether it's in RADAR or BMS, can help your overall automotive business get back into a target growth rate, which, I think, you had at a 7% to 10% CAGR on a longer-term perspective?

Kurt Sievers -- President

Well, I'd say they do have already because it's about 30% of the total revenue, which is very above average in terms of growth. So once the other 70% based on the SAAR comes back to a normal growth rate, you will see this striking through for the total -- and obviously, with these above average growth engines, like RADAR or BMS or the digital process, of course, gaining share against the total, this will become more and more material over time. This is today a 30% period since it grows far above average the 30%, of course, will take a higher share in the coming years.

Rick Clemmer -- CEO

I think the real clear thing is the recent hit we are seeing in our total growth because of the general automotive market and the declines in production. So the fact is, we've been able to hold at that level on our shipments based on those new productive areas and as the general automotive market production levels come back to more of a normal basis, clearly, it will kick in and drive revenue growth for us as a company.

Vivek Arya -- Bank of America -- Analyst

Thank you.

Operator

And our next question comes from Ross Seymore with Deutsche Bank. You may proceed.

Ross Seymour -- Deutsche Bank. -- Analyst

Guys thanks for let me ask a question. I want to stick on the automotive side of things. And between the first quarter report and your second quarter guide, it looks like you're down in auto, 8%, 10% year-over-year. I understand it's tough market for all the reasons you've given in answering prior questions. But if we you think about that relative to SAAR, the last couple of years, you guys have outperformed SAAR. You have the 30% driver, et cetera. and you outgrow even in the 70%, but it doesn't seem like that's happening in the first half of the year. Can you just talk about some of those drivers, is it simply the inventory burn in the first half? And is your expectation still to be able to outgrow the SAAR side of things and even the automotive and the peers as we get through 2019 and beyond?

Kurt Sievers -- President

So yes, clearly, the expectation is to continue to outgrow the auto SAAR. It just doesn't work on a quarter-by-quarter basis. I mean, you have to look at a little bit longer time. We started this also, historically, it's just swinging. And one single quarter doesn't really work. But yes, clearly, we'll continue to outgrow the overall auto SAAR by, say, 5% to 7%. That has been the basis and continues to be the basis for our mid and long-term forecast, which is like 7% to 10%, which was based on a 2% SAAR.

Now if the SAAR in the couple of quarters returns to more normal rates, like 0% to 2%, we're also back to that growth rate. Relative to peers, I mean, I don't know peers will print over time, but clearly, now chosen fields of focus, which we also mentioned at the beginning of the call very clearly be it battery management for the electric power train or be it RADAR within the ADAS space, we have outgrown and we'll continue to outgrow also our peer very clearly.

Ross Seymour -- Deutsche Bank. -- Analyst

Thanks for that, Kurt. My follow-up is one on cash returns for, probably it's for Peter. I know you have a couple of million shares left to buy in the currently approved authorization. Can you just talk about the logistics to expand that? And how you're planning to return cash in the balance between share repurchase and the dividend as we think going forward beyond this share repurchase program that's about to expire?

Peter Kelly -- Executive Vice President and CFO

Yes. We can -- actually, we can buy back about another 3.7 million shares between now and our Annual General Meeting, which is in June. So in June, we will request...

Kurt Sievers -- President

Request authorization.

Peter Kelly -- Executive Vice President and CFO

Request authorization from shareholders to have a general buyback capability of, I think, it's 20%. That doesn't mean at that point, say, we're going to buy back 20% of the stock, but normally, a Dutch company runs with this 20% allowance in its back pocket but no one every spends and, as Rick mentioned before, we basically just spent in the last 6 months, which is kind of unusual.

So in June, we'll get that topped up. But more generally, our commitment is to return all excess cash flow to our shareholders. We have a history of living to that commitment and we'll continue to -- we'll continue to live it. And we continue to have a dividend, and we'll get the chance as we go forward to possibly and potentially increase that dividend here.

Ross Seymour -- Deutsche Bank. -- Analyst

Thank you.

Operator

And our next question comes from Blayne Curtis with Barclays. You may proceed.

Blayne Curtis -- Barclay -- Analyst

Hey guys, thanks very much to my question. Just want to revisit the RF segment. It looks like is reaccelerating in June. Just kind of curious your perspective on that trajectory this year and the next. There's been some talk about maybe customers positioning ahead of Chinese tenders, so maybe you get a little front-loading. Just kind of curious of your view there? And then any perspective on your GaN product would be helpful?

Rick Clemmer -- CEO

Yes. So I don't think we see a lot of pre-ordering associated with that. What we really are seeing is a ramp-up of deployment of our massive MIMO solutions, which we've had quite a success in the marketplace. And frankly, we're quite limited by our manufacturing capability right now. So I think, that's really kind of the contributing factor for us. It's not about, I think, the term you use was preorders associated with Chinese. We don't see that as being a significant factor in our Q2 guidance at all, but instead the massive MIMO results. Our GaN solutions continue to be well received in the market. We continue to win design wins. And frankly, it's a challenge to be able to supply all the customer requirements associated with it. And we do have our internal manufacturing facility to be ramping later this year associated with GaN.

So I think, we're in -- we believe quite reasonable shape in GaN. And I think, we can continue to take our leadership position in the base station RF market even as the market converts more to GaN, but the timing of the transition to GaN has clearly changed over the last few years. And frankly, the massive MIMO opportunity represents a much more significant growth we believe in the next number of quarters a 1.5 years or so than really be opportunity specifically associated with GaN. The LDMOS technology has clearly moved up and been able to move into a higher performance than people would have anticipated several years ago.

Blayne Curtis -- Barclay -- Analyst

Just want to follow up on your comments again on BMS. You talked about several hundred million dollars potential in 2021. If you could add any color in terms of geographic? And any sort of between now and 2021, is there anything else that has to happen in terms of that design progress?

Rick Clemmer -- CEO

Well, the focus from a perspective is really the battery companies. So we do work not that much with the classic automotive Tier 1 companies, but with the battery companies. And they tend to be, by definition, more in Asia than in Europe or in the U.S. So I would say from a geographic design in perspective, think about China, Korea, even Japan. Now that doesn't mean that has to do with the local consumption there. It's just that they are the leaders globally in battery technology and lithium-ion battery technology, but they do ship and we do have some transparency into this in which really the programs are ramping, that's absolutely global. I mean, I wouldn't make any differentiation there between European, U.S. or Asian car programs.

Kurt Sievers -- President

And the initial production is quite exciting platform.

Rick Clemmer -- CEO

So I mean, I'm still try to say because it's just about too large, but actually, it's a large -- a very, very large German car OEM, which is -- which has its entire electric powertrain battery platform based on our solution. And the first cars, which are very nice high-end sports cars, which I think, we'll all love to have, but they're sold out by the way for the next 2 years as far as I know, they will launch in late summer this year. But again, that's a platform win, which is then going to actually go and spread out into all of the electric vehicles of that car company.

So again, that happens to be a German company, but that doesn't mean that the battery work has been done with a German company, which doesn't exist, but actually all in Asia. So it's a very global business. I think we spent very strong based on the combination of our analog precision of our ASIL-D function safety knowhow and the micro controllers which we have. So that system approach continues to give us a unique position in that market.

Operator

Thanks. And our next question comes from Craig Hettenbach with Morgan Stanley. You may proceed.

Craig Hatton -- morgan Stanley -- Analyst

Yes thank you. I have a question on industrial IoT. If you can just talk about kind of attach rate with connectivity with a core micro controllers and then any update on some of the trends you're seeing along those lines?

Rick Clemmer -- CEO

Yes. I think we've talked about the connectivity requirements for low-power WiFi associated with industrial and IoT market. We announced some partnerships in the previous, in the most recent, quarter that one of those in specifically was an announcement with Maratha in Cyprus associated with the solution that we're offering, but we continued to see high demand from our customers looking for a complete solution with the connectivity to go with our processing capability to be able to facilitate their solutions and what they're trying to accomplish.

Craig Hatton -- morgan Stanley -- Analyst

Got it. And then just a follow up. I appreciate the color on the channel and inventory. Any updates on just kind of how lead times are and then just the comments around kind of overall market stable just kind of how things were through the quarter. Is it still kind of choppy intra-quarter or anything along those lines on the order front?

Rick Clemmer -- CEO

So I guess, on the order front, as we talked a little about, we've actually seen an improvement in orders, but we don't see the sell-through from our distribution partners picking up, specifically in China. So I think, while we've seen that increased order activity, we're a little bit reluctant to expect that to really fall through to the customers in the near-term or in the Q2 time frame. And thus we're relying on the specific design wins that we have to be able to achieve the revenue increase that we have. And I'm sorry I forgot your first...

Kurt Sievers -- President

Yes, we basically maintain our lead terms. We don't move our..

Rick Clemmer -- CEO

Oh yes!

Kurt Sievers -- President

lead times around like maybe some of the other guys do.

Rick Clemmer -- CEO

Yes. We're pretty religious about our lead times. If someone wants to place an order within the lead times, we actually have a tendency to charge them a premium associated with being able to meet those requirements.

Craig Hatton -- morgan Stanley -- Analyst

Got it. Thanks.

Rick Clemmer -- CEO

Thanks.

Operator

And our next question comes from C.J. Muse with Evercore. You may proceed.

C.J. Muse -- Evercore -- Analyst

Yeah. Good morning. Thank you for taking my question. I guess, first question, NXPI specific design win momentum has been clearly a key theme on this call. So curious as you look at your second half outlook for continued recovery, is that NXPI specific again? Or is that something cyclically structurally where you see improvement?

Rick Clemmer -- CEO

We're not talking about the second half as far as projections associated with it beyond what we said that Q2-- I mean, second half will be above the first half. The confidence we have is clearly associated with the designs wins we have and that being able to facilitate that. Although there should be some nominal pickup in market even if there's not a robust recovery in the second half.

C.J. Muse -- Evercore -- Analyst

Helpful. And then, I guess, as a follow up, the mobile upload teams in June is, I guess, a bit surprising seasonally. Curious, how we should interpret that in terms of impact and what the run rate will look like into the second half of 2019?

Rick Clemmer -- CEO

Well, that's a design wins that we talked about in the improved acceptance of our mobile wallet. So it's kind of continues down the same path, and we expect that to continue, as Kurt talked about from the...

Kurt Sievers -- President

30%.

Rick Clemmer -- CEO

30% to 50% by 2021. So we're kind of on course to be able to maintain that and see wider acceptance with more customers in different applications to continue to increase our confidence. And we're a niche player in the mobile market. We're not a mainline player in the mobile market and never planned to be mainline player, but instead can take unique technology to drive applications for customers that just happened to be deployed in the mobile market.

C.J. Muse -- Evercore -- Analyst

Thanks.

Rick Clemmer -- CEO

Thanks

Operator

And our next question comes from Matt Ramsey with Calvin. You may proceed.

Matt Ramsey -- -- Analyst

Thank you very much. Kurt, I wanted to ask a question just on the automotive semi macro just as more of a clarification than anything. The ADAS business that you have, 30% of your business obviously has really strong growth. The other 70% has been commented a few times is tied to SAAR, but I wanted to make sure we made the distinction between SAAR growth and semiconductor growth within the SAAR. Maybe you could sort of remind us what you guys are forecasting for market growth for the semiconductor macro within the SAAR?

Kurt Sievers -- President

Well, let me first try and clarify when we say the 70% are tied to the SAAR, we still outgrow the SAAR. So there's still content growth obviously which should be at least 5% ahead of the SAAR also in that 70% portion of our business. When we say types of SAAR, what that really means is, since it is closer to the SAAR, it swings more with the SAAR. Wherein in RADAR when we grow, say, 30% year-over-year, I mean, the SAAR with the 2%, 3% change actually doesn't matter. I mean, that was the commentary we made about association or non-association with the SAAR. So that's why I would say the semi auto market should continue, thanks to the content increase across the board, should continue to be, I don't know, 4% or 5% ahead of SAAR through the cycle and through the year.

The more crucial question is actually what the SAAR is going to be? And I mentioned earlier on the call that the Q1 wasn't particularly great start. So I adjust what's reporting Europe minus 8% year-on-year in Q1 in car production. And China minus 13%, and those are 2 pretty significant sectors. While I just still forecast that for the year that this gets better in the second half, which results in the minus 1% for the full year, which should indicate a positive auto semiconductor market for the full year.

Rick Clemmer -- CEO

Yes, it's really important to think about the mix of that SAAR as well. If you look at it, China is like double the size of the U.S. market and Europe is larger than the U.S. market. So in fact, the 2 largest regions for SAAR production were quite weak in the first quarter.

Matt Ramsey -- -- Analyst

Got it. Thank you very much for the clarification. Just one quick follow-up on BMS because it's been brought up a few times. Maybe I'm just curious as to your focus or strategy for the charging side of the battery equation, whether that's super charger, charger infrastructure, et cetera, and if you're doing any work there?

Kurt Sievers -- President

No we don't. We're not in that.

Rick Clemmer -- CEO

On the automotive side, we do have charging...

Kurt Sievers -- President

For mobile..

Rick Clemmer -- CEO

For mobile devices.

Kurt Sievers -- President

Far more than automotives.

Matt Ramsey -- -- Analyst

Got it. Thank you.

Rick Clemmer -- CEO

Thank you.

Operator

And our next question comes from Toshiya Hari with Goldman Sachs. You may proceed.

Toshiya Hari -- Goldman Sachs -- Analyst

Thanks very much for squeezing me in. Peter, I had a follow-up question on gross margins. You talked about richer product mix driving your profitability in Q2. Can you talk to some of the product areas that drove the upside there? And related to that, Rick, you talked extensively about ADAS and BMS as long-term drivers. Can you speak to profitability for those 2 segments as they continue to grow as a percentage of sales going forward?

Peter Kelly -- Executive Vice President and CFO

Sure, we don't disclose profitability by segments even at the gross margin or the operating margin level. So because there's just lots of moving parts. As I've said, previously, you have the big groups stir up different margin profiles. But within the groups, you have different product sets, which have different margin profiles as well and it turned out pretty nicely for this quarter.

Kurt Sievers -- President

And maybe consent we're a little bit conservative going into the guard.

Rick Clemmer -- CEO

Yes, the mix comment was really more focused on Q1 helping facilitate that. And then, I guess, the only thing that we could say is ADAS and BMS margins are quite nice.

Toshiya Hari -- Goldman Sachs -- Analyst

Okay. That's helpful. And then, as a quick follow-up, the comps and for other segment, I believe the long-term growth rate from the Analyst Day is flat up 2%. Given the recent developments there and giving your commentary on the call, is that a pretty conservative kind of guide at this point? And could there be potential upside? Or do you think the near-term strength of could be one-off in nature, if you will?

Rick Clemmer -- CEO

Well, you know there is always gives and takes associated with this. I don't think we're going back and changing our long-term guidance at all. Clearly, in the near-term, it's a positive contributor and helps us kind of offset the general market weakness that we see. But clearly, we're pretty conservative on that segment and we said that at the time we set that the groom guidance. So there could be opportunity for upside, but it's always in the gives and takes and that we're not really changing any of our long-term guidance at all.

Toshiya Hari -- Goldman Sachs -- Analyst

Thank you.

Kurt Sievers -- President

Thanks. Operator, we'll take 1 more call today.

Operator

And our next question comes from Harlan Sur with JPMorgan. You may proceed.

Harlan Sir -- J.P. Morgan -- Analyst

Good morning. Thanks for taking my question. On the industrial and IoT segment in the June quarter, you talked about company-specific design wins. This is not pretty broad-based segment, you've got Kinetis, you got i.MX, high performance analog, lot of connectivity. Can you just help us understand given the strong design win pipeline, what are the specific applications or products or platforms that are driving the sequential growth? Does it buy us more toward things like building automation or factory automation or connected home? Any insights would be helpful.

Rick Clemmer -- CEO

So it's a more on the crossover segment. It's, I think, the key where we anticipate seeing the significant growth contribution is the crossover segment where we are kind of uniquely positioned. And as far as driving the growth, it's a lot more on the variable segment than anything else. I think over the intermediate term, there's a lot like the immersive sound solutions that we have to be able to differentiate on the Dolby Atmos capabilities. Lot of factory automation that are spread among many thousands of customers.

Kurt Sievers -- President

And maybe adding voice assist. So it's really 4 areas the variables which you mentioned, Rick, by industrial automation, which is analog detection and that kind of stuff assist, voice assist into robot home solutions.

Rick Clemmer -- CEO

And industrial.

Kurt Sievers -- President

And industrial And finally, the sound bars where, I think, Rick, also spoke about the Dolby Atmos for example which has got the certification. I'd say it's those 4 very different segments, but they all use of our crossover technology.

Harlan Sir -- J.P. Morgan -- Analyst

Thanks for insights there and the insight into the RT crossover platform. But..

Rick Clemmer -- CEO

Let's be specific Harlan, it's not just RT, our crossover family of processors is a combination of RT, ULP, and MScale. So it's a combination of those, not just RT.

Peter Kelly -- Executive Vice President and CFO

It's actually a broadening category, which is very good which I would almost say we're creating between the micros and the application processors. So while that started really with a sharp focus on the RT, I think, we're broadening this because we have so much traction that we can pull into it.

Rick Clemmer -- CEO

Basically bringing some of the specific functionality that you could normally only get in very costly apps processor down to a more reasonable cost point for a broader array of implementations.

Harlan Sir -- J.P. Morgan -- Analyst

Yes. And that's a good segue to my next question, which is that when we think about your full-blown processor family, the i.MX family, which we typically associate with auto. The i.MX actually continues to have, I think, strong traction in the Industrial and IoT Edge markets. For example, like you i.MX 8 family, that's actually 40-nanometer technology. Can you guys help us understand the contribution and design win traction of the i.MX in Industrial and IoT as markets?

Rick Clemmer -- CEO

It's significant. I don't -- Kurt talked about the specific applications that we see and the broad-base associated with that. And we continue to have good traction, but it's a broad array of customers, not any individual single solutions.

Harlan Sir -- J.P. Morgan -- Analyst

Great. Thanks for the insights.

Rick Clemmer -- CEO

Thanks.

Operator

Thank you. Ladies and gentlemen, this now concludes our Q&A portion of today's conference. I'll now turn the call over to Jeff Palmer for any closing remarks.

Rick Clemmer -- CEO

Maybe I'll make closing remarks, as opposed to Jeff. But I think our -- we were very pleased with our quarterly results in Q1 and encouraged about the customer acceptance that we have that allows us to have the guidance for Q2. That opportunity continued to gain traction with the design wins and make a difference for our customers is really about our long-term strategy and how we're focused on customer-focus passion to win to be able to drive our solutions to be able to make a difference with our customers and we're encouraged about being able to demonstrate the comprehensive results associated with that. So thanks a lot for your support and we appreciate it.

Jeffy palmer -- Vice President of Investor Relations

Thank you.

Operator

Ladies and gentlemen, thank you for your attending today's conference. This does conclude the program, you may all disconnect. Everyone, have a great day.

Duration: 54 minutes

Call participants:

Jeffy palmer -- Vice President of Investor Relations

Rick Clemmer -- CEO

Kurt Sievers -- President

Peter Kelly -- Executive Vice President and CFO

John Pitzer -- Credit Suisse -- Analyst

Will Stein -- SunTrust -- Analyst

Stacy Rasgon -- Bernstein Research -- Analyst

Vivek Arya -- Bank of America -- Analyst

Ross Seymour -- Deutsche Bank. -- Analyst

Blayne Curtis -- Barclay -- Analyst

Craig Hatton -- morgan Stanley -- Analyst

C.J. Muse -- Evercore -- Analyst

Matt Ramsey -- -- Analyst

Toshiya Hari -- Goldman Sachs -- Analyst

Harlan Sir -- J.P. Morgan -- Analyst

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