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Date

Tuesday, April 28, 2026 at 4:30 p.m. ET

Call participants

  • President and CEO — Rafael Sotomayor
  • Chief Financial Officer — Bill Betz
  • Vice President, Investor Relations — Jeff Palmer

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Takeaways

  • Total revenue -- $3.18 billion, representing a 12% increase year over year and a 5% sequential decline; outperformed guidance midpoint by $31 million.
  • Non-GAAP operating margin -- 33%, up 120 basis points year over year and 40 basis points above guidance midpoint.
  • Non-GAAP earnings per share -- $3.05, exceeding guidance midpoint by $0.08.
  • Automotive segment revenue -- $1.78 billion, up 6% year over year or 10% year over year when adjusting for the MEMS sensor business sale.
  • Industrial & IoT revenue -- $628 million, rising 24% year over year, with new industrial processing products (i.MX, RP, MCX) growing 75% year over year and representing almost half of segment growth.
  • Communications infrastructure revenue -- $380 million, growing 21% year over year, attributed to strength in digital networking and RFID products.
  • Mobile revenue -- $391 million, increasing 16% year over year as guided, reflecting ongoing demand in secure mobile transactions.
  • Data center revenue exposure -- $200 million in 2025, expected to surpass $500 million in 2026 across both Industrial & IoT and Communications Infrastructure segments.
  • Company-specific growth drivers -- Grew 18% year over year and comprised about one-third of total revenue, mainly led by automotive and industrial & IoT segments.
  • Core business growth -- 10% year over year, demonstrating momentum beyond strategic drivers.
  • Non-GAAP gross margin -- 57.1%, marginally above guidance due to product mix and utilization; Q2 guidance for 58%, up 150 basis points year over year.
  • Operating expenses (Non-GAAP) -- $758 million, accounting for 23.8% of revenue and below guidance due to realized efficiency gains.
  • Debt and cash position -- $11.7 billion in debt, $3.7 billion in cash, resulting in net debt of $8 billion or 1.7 times adjusted EBITDA.
  • Cash flow from operations -- $793 million, with non-GAAP free cash flow at $714 million (22% of revenue).
  • Capital returns -- $358 million returned to owners via $256 million in dividends and $102 million in share repurchases; an additional $32 million repurchased after quarter end.
  • Inventory metrics -- 165 days of inventory (including 7 days of prebuilds), 34 days receivables, 59 days payables, and a 140-day cash conversion cycle.
  • BSMC/ESMC joint venture investments -- $385 million invested in BSMC during the quarter (67% through planned cycle), with $425 million more expected in 2026 for BSMC and $50 million for ESMC.
  • Second quarter revenue outlook -- Guidance midpoint at $3.45 billion, up 18% year over year and 8% sequentially; expectations for all end markets to show year-over-year growth.
  • Segment-specific Q2 forecasts -- Automotive: low double-digit percent growth year over year and high single-digit percent sequentially (high-teens year over year and 10% sequentially when adjusting for the MEMS sensor sale); Industrial & IoT: high-30% range year over year and high-teens sequentially; Communications Infrastructure: mid-30% year over year and mid-teens sequentially; Mobile: low single-digit percent year over year and down low double-digit percent sequentially.
  • Long-term financial targets -- Reaffirmed Analyst Day commitments to double-digit revenue growth in both 2026 and 2027; gross margin expansion toward 60%+ and operational efficiency highlighted as strategic priorities.
  • Channel inventory -- Sustained at 11 weeks to support robust Industrial & IoT growth, which is 80% channel-driven.
  • Gross margin drivers -- Favorable product mix and increased front-end factory utilization in the low to mid-80% range expected to support further margin expansion.

Summary

NXP Semiconductors (NXPI 2.74%) reported revenue and profitability above guidance midpoints, showcasing broad-based strength across automotive, Industrial & IoT, mobile, and communications infrastructure segments. Management highlighted an ongoing increase in data center-related revenue, projecting more than double the prior year, and outlined growing design-win momentum for next-generation automotive and industrial products. The company reiterated its confidence in achieving double-digit revenue growth and gross margin expansion through 2027, driven by structural industry trends such as software-defined vehicles and physical AI. Strategic capital allocation, joint venture investments, and sustained efficiency gains are emphasized as key contributors to improved financial leverage and future cash flow resilience.

  • Management disclosed that data center revenue is anticipated to exceed $500 million in 2026, primarily from control-plane applications and achieved through customer adoption of the i.MX and Layerscape product families.
  • Rafael Sotomayor stated that in automotive, "this is not necessarily a story about unit growth," clarifying that increased semiconductor content per vehicle, rather than unit volumes or pricing, is driving growth.
  • Bill Betz said, "So if your question is whether these data center control-plane products are favorable to corporate gross margins, the answer is yes. They are very favorable, and we will continue to drive and focus there," indicating an accretive margin effect from the data center business mix shift.
  • Pricing actions remain limited and "the Q2 impact is immaterial," according to management, with select price adjustments enacted only to offset input cost inflation where operational mitigation is insufficient.
  • CEO and CFO both confirmed adherence to Analyst Day long-term targets, asserting visibility into demand drivers and execution on secular growth opportunities across auto, industrial, and data center segments.
  • Investments in the BSMC and ESMC joint ventures are progressing on schedule, with BSMC tool installation and capacity ramping anticipated to deliver approximately 200 basis points of gross margin expansion by 2028.
  • Integrations of TTTech, Aviva Links, and Kinara are advancing, expanding the portfolio with zonal automotive platforms, open-standard SerDes, and edge AI processing assets now in active customer proof-of-concept stages.
  • The Industrial & IoT business experienced both accelerated product-driven growth and a recovery in its core revenue base, resulting in broad-based segment momentum entering Q2.

Industry glossary

  • BSMC: A manufacturing joint venture in Singapore, referenced as a strategic capacity initiative to support NXP Semiconductors’ wafer production and gross margin goals.
  • ESMC: Another semiconductor manufacturing joint venture, associated with the planned move from 200mm to 300mm wafers for further efficiency gains.
  • SAM (Serviceable Addressable Market): The specific market within the broader sector that NXP Semiconductors targets and can realistically serve, particularly referenced for data center control-plane solutions.
  • SDV (Software-Defined Vehicle): An automotive trend enabling vehicles to be defined and updated through software platforms, a core growth area for NXP Semiconductors.
  • POC (Proof of Concept): Refers to early-stage customer engagements that validate product feasibility and performance prior to large-scale deployment or production ramp.

Full Conference Call Transcript

Jeff Palmer: Thank you, Lisa. Good afternoon, everyone. Welcome to NXP Semiconductors N.V.’s First Quarter 2026 Earnings Call. With me on the call today is Rafael Sotomayor, NXP Semiconductors N.V.’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 Semiconductors N.V.’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 2026.

NXP Semiconductors N.V. undertakes no obligation to revise or update publicly any forward-looking statements. For a full disclosure of forward-looking statements, please refer to our press release. Additionally, we will refer to certain non-GAAP financial measures that are driven primarily by discrete events that management does not consider to be directly related to NXP Semiconductors N.V.’s underlying core performance. Pursuant to Regulation G, NXP Semiconductors N.V. 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 Semiconductors N.V.’s website in the Investor Relations section.

Now I would like to turn the call over to Rafael.

Rafael Sotomayor: 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-specific growth drivers and, importantly, with momentum now visibly broadening into the core of our business. What we are 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.

Now 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 end markets grew year over year. In aggregate, we outperformed by $31 million above the midpoint of our guidance. Our company-specific strategic growth drivers across the auto and industrial & IoT end markets grew 18% year over year and represented roughly one third of first-quarter 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 delivering non-GAAP earnings per share of $3.05, $0.08 above the midpoint of our guidance. Now 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 sale 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 auxiliary growth drivers contributed nearly 90% of the year-over-year growth.

From a customer adoption perspective, we are 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 imaging radar solutions, along with wins for our 10-gigabit automotive Ethernet products. These are multi-year platform commitments that expand NXP Semiconductors N.V. content per vehicle and deepen the structural relationship with our customers. The automotive opportunity is a long-duration compounding story, and 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, RP, 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 Semiconductors N.V., 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 are seeing customers making deeper multi-generational commitments to NXP Semiconductors N.V. because of the strength of our AI-enabled product portfolio. Now, I want to take a moment to speak directly about our data center exposure, because this is an area that we have not 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 awarded programs that we are executing, 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 Semiconductors N.V. for our processing depth and security capabilities. Based on customer engagements, we are 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 new code RFID product.

And 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 second quarter. Our outlook is better than we anticipated 90 days ago. We are guiding second-quarter revenue to $3.45 billion, up 18% year over year and up 8% sequentially. This sequential growth represents an acceleration of our company’s 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 sale of the MEMS sensor business, our guidance implies a high-teens percentage 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. Mobile is expected to be up in the low single-digit percent range year over year, and down in the low double-digit percent range on a sequential basis.

And 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 a story of breadth, depth, and acceleration. Our company-specific core drivers are performing as designed. Our core business is inflecting. And 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, and return excess cash via dividends and buybacks, consistent with our long-term model. And now, I would like to pass the call to Bill for a review of financial performance.

Bill Betz: 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, led by our company-specific growth drivers across our focus end 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. Noncontrolling 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 plan. 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 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 7 days of prebuilds. 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 plan. 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 BSMC, our manufacturing joint venture in Singapore. This is comprised of $189 million in long-term capacity access fees and $196 million in equity contributions.

Overall, we are about 67% through the investment cycle for BSMC and about 30% for ESMC. For BSMC, we expect an additional $425 million in 2026. For ESMC, we expect 2026 investments to be about $50 million. Now turning to our expectations for Q2. We expect Q2 revenue of $3.45 billion, plus or minus $100 million. This is up 18% year on year and 8% sequentially. The expected first-half results support our view that NXP Semiconductors N.V.’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%, plus or minus 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, plus or minus $10 million. This reflects the $17 million annual RFID licensing fee and normal annual merit increases. At the midpoint, this results in 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 noncontrolling 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 capital expenditures to be approximately 3% of revenue, with a capacity access fee payment to BSMC of $55 million and equity investments into BSMC 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% plus, and continued discipline in our operating expenses.

I would like to now turn the call back to the operator for your questions.

Operator: Thank you. We will now open the call for questions. Press star 11 on your telephone. If you would like to remove yourself from the queue, press star 11 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.

Vivek Arya: 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 within China and outside of China, and then how much of a pricing benefit are you seeing? Because everything appears to be in short supply right now, and I was wondering if NXP Semiconductors N.V. is seeing any benefit from the pricing side of the equation, or you think this is more just company-specific and these are more unit rather than pricing-driven growth upside that you are seeing right now in autos?

Rafael Sotomayor: Thank you, Vivek, for the question. Let me tackle the question in auto because I think we have right now a backdrop of constant news of SAR being down and maybe people getting confused about what that means for us in the auto business. I will say out of the gate, SAR gives you how many vehicles are produced. This says nothing about semiconductor content per vehicle. In this environment, our auto business at NXP Semiconductors N.V. has performed well. You can see from the Q1 print, it grew 10% after you account for the sensor business, and Q2 guide implies a high-teens year-over-year growth on the same basis.

So you can see that clearly the momentum is improving, and that tells you already this is not necessarily a story about unit growth. This is a story about the architectural transformation that is driving content growth. So my answer to you is architecture-led, and that is the real story. For us, it is a content story that is starting to show in our numbers. The one thing I want to leave you with as well is this growth is increasingly structural. Our accelerated growth drivers have been growing double digits since Q4, and that also happened in Q1. It is going to continue in Q2.

They are contributing to 90% or 90-plus percent of the growth of the segment, and that tells you our growth is increasingly structural. You asked about China. You talk about events that say production is down, but every region in automotive is up year over year. Despite the sequential decline of the quarter, year on year we are actually growing year on year in every region, and that continues into Q2.

Vivek Arya: And for my perhaps on the comms infrastructure segment, I think the last call you kind of broke it out, half in your tagging products and then digital networking and RF power. Back at your Analyst Day, you had set essentially 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? So what is the true growth rate of your comms infrastructure business in 2026 and 2027 that we should be looking forward to versus what you thought at the Analyst Day? Thank you.

Rafael Sotomayor: Let me answer by stating that we are 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 is in comms and infra. If you remember what I said, this end market is going to be basically flat CAGR for the next three years between 2024 and 2027, and we experienced a decline of close to 25% last year. We closed the year on this segment with about 50% of this revenue being tied to secure cards, about a quarter tied to digital networking, and a quarter to RF power.

Now you can see that the comms and infra end market is recovering primarily on the back of the strength of secure cards—RFID is actually going up—and our exposure to data centers through our digital networking products is rebounding. I think the composition of this segment is going to shift a little bit more from RF power, which we are deemphasizing and is going to probably start decelerating in 2027. The revenue composition is going to change from RF power more towards digital networking, and secure cards is likely to stay around 50%. That is the way you should think about it.

Operator: 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.

Ross Seymore: 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 am not trying to get you to guide for the back half of the year, but is your visibility improving? What gives you the confidence in that? How much is cyclical versus secular? Those sorts of things.

Rafael Sotomayor: That is a fair question. First of all, I will resonate with you that I am not going to guide the second half today. But I will say the setup is clearly improved. If you take the Q2 guide, you can probably estimate about 15% growth in the first half of 2026 versus the first half of last year, and actually it is 18% if you adjust for sensors. So you can see we are starting the year stronger. What has changed? The visibility has improved. The direct order book continues to strengthen. The distribution backlog continues to improve. So we believe the momentum continues.

We will stay disciplined in the way we guide, but the signals we track give us confidence the momentum of our company-specific growth drivers will continue throughout the year, and it is going to drive the data center revenue, which we believe is going to be more than doubling this year.

Ross Seymore: 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 are targeting? Just talk a little bit about what gives you the confidence in that and how NXP Semiconductors N.V. is differentiated.

Rafael Sotomayor: Maybe I will start by explaining our exposure to data center because that could be confusing. Off the bat, we are not claiming exposure to the data plane—no GPUs, no accelerators, no high-speed AI connectivity. Our domain is in the control plane. As data centers scale, the constraints are not just compute and memory; they are also power, cooling, uptime, and security, and this is where NXP Semiconductors N.V. plays. Our products are Layerscape networking processing for control-plane networking, i.MX products for board management, and MCUs doing root of trust or being part of the cooling system.

We play in the part of the system where you need high reliability and long life cycle applications, and this is where NXP Semiconductors N.V.’s industrial-strength portfolio is differentiated. The growth we anticipated from last year to this year is underpinned; these are products not only designed in but ramping, and the momentum should continue into the second half.

Operator: 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.

Thomas O’Malley: Hey, guys. Thanks for taking my question. Just on the channel, you guys went from nine weeks to ten weeks, now it looks like ten weeks to eleven weeks. Clearly, the demand profile for the rest of the year is stronger. Was curious if you 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 at that eleven-week mark that you have described in the past?

Rafael Sotomayor: Yes. In Q1, we went to eleven weeks, and if you remember, our guide for Q1 last quarter already reflected the one-week increase in our inventory. It was primarily to service a much stronger demand environment. If you look at our growth in Industrial & IoT in Q1, it grew over 20%, and about 80% of that business is serviced by distribution. So we already had an idea of where the strength was going to come from. Our Q2 guide in Industrial & IoT—which, again, about 80% of that comes from the channel—is guiding towards high-30% growth. We are clearly servicing the channel. Our Q2 guide is based on channel inventory staying flat at eleven weeks.

We intend to stay in our long-term target, which is eleven weeks.

Thomas O’Malley: And then just as a follow-up on the data center side, you are obviously seeing gross margin benefit from volume. You also talked about mix as well. You do not give specific gross margin targets on your segments, but could you maybe give us a flavor of whether these new products are beneficial to corporate gross margins? And as that scales, should you see a tailwind from the data center business as well on the gross margin line? Thank you.

Bill Betz: Yes. Hey, Tom. How are you? Thanks for your question. Let me address the gross margin in general and specifically your question. Our gross margins continue to expand driven by higher revenue, product mix, and utilization levels. Our utilization on our front end—think about the first half to be in the low 80s, and the second half to be in the mid 80s—so we will get benefit from those utilization levels for our gross margin. Again, all the investments we are making and how we service customers are focused on being accretive to our corporate gross margins.

In these areas, when we make investments or provide our broad portfolio into different applications, it is extremely important that we extract value and also create value for our customers. So if your question is whether these data center control-plane products are favorable to corporate gross margins, the answer is yes. They are very favorable, and we will continue to drive and focus there.

Jeff Palmer: Lisa, we will take the next caller. Thank you.

Operator: The next question will come from the line of Francois-Xavier Bouvignies of UBS. Please go ahead.

Francois-Xavier Bouvignies: Thank you very much. I wanted to follow up on the pricing dynamics. We have seen pricing increase in the industry so far at the beginning of the year, and we have seen some reports that NXP Semiconductors N.V. is also involved in this pricing dynamic. You do not talk much about pricing, so I think maybe it is not that big an impact yet. But should we expect the pricing move for the rest of the year as an upside potential if it is getting tighter? And Bill, you mentioned mid-80s utilization in the second half of the year. So maybe you are reaching a level where you could increase pricing over time. Is that a possible scenario?

Rafael Sotomayor: Francois, let me answer the question in the way we see it. Your question relates to inflationary costs and the impact on pricing. Pressure in terms of cost is always a job for us, and we must tackle it. Our first reaction to cost increases is always to mitigate them through operational efficiency, and that is our preferred approach. That said, in selected areas we are seeing higher input cost pressure, and so we are taking selectively small pricing adjustments to protect the economics of the business. The reason we have not talked about it is because the Q2 impact is immaterial.

We will continue to be disciplined and protect gross margins when cost inflation requires a response, and we will keep you updated if things change.

Francois-Xavier Bouvignies: Makes sense. Thank you, Rafael. And maybe the second question is on this broad-based recovery across all products and China. When you said China is also growing—and when we look at Q1, the China auto car sales, at least for the domestic part, are down meaningfully, mid-teens percentage year on year—do you see China still strong year on year in Q2 and for the remainder of the year, or do you see any impact from that data we see for car sales in China? Or is the content higher and offsetting? Any color on China specifically would be great.

Rafael Sotomayor: That is why I acknowledge the headlines from China. It has been very public that production in China was weak, primarily driven by weakness in internal consumption and some headlines that Chinese OEMs are focusing more on export to overcome challenges in the domestic market. The contradiction, as I continue to say, is that production volatility is very small compared to content growth, and China is no different than the rest of the world. For us, China grew year on year in Q1. It was not necessarily massive, but it grew, and it continues to grow into Q2. The story does not change: content growth overcomes unit volatility.

Operator: Thank you. One moment for the next question.

James Schneider: Good afternoon. Thanks for taking my question. Given the commentary you made in the idiosyncratic growth drivers you are seeing relative to 2026 and 2027, I just wanted to clarify that you are still on track to 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.

Rafael Sotomayor: Yes. We were specific, both in our script—both Bill and I—in our prepared remarks that we are confident and we have conviction in the trajectory we have with our secular growth drivers, and that 2027 is achievable. The answer is yes, we stay with our 2027 targets.

Bill Betz: And just to add, the secular drivers continue to perform very, very well. We expect for the auto ones to be above our high end in Q2, and for Industrial & IoT, the growth rates to be above the high end of what we said for our company-specific Industrial & IoT growth drivers.

James Schneider: That is helpful. Thank you. And then relative to the data center disclosure you provided, that by all accounts appears to be at or potentially above the rate of data center growth for many of your analog peers. Can you talk about whether there are any specific areas that are outgrowing the overall envelope there, and do you plan to deliver or introduce any new products to further apply towards that opportunity?

Rafael Sotomayor: In data center, we are just ramping, and again we will be focusing on the control plane of the data center. The growth of that exposure is just beginning because we are just ramping. Our SAM on the control plane is probably growing about 10% to 11% per year. We are going to outgrow the SAM because we are just ramping, and we expect that to continue in 2026 and 2027. We are doubling down on some of the products to seize the opportunity we have in current engagements. We are talking to our customers about what the next generation of products is going to be. The exposure in data centers spans about 20 to 25 products.

Some of the higher-ASP products are in the networking side, and the i.MX products are for board management and control. We are speaking with customers about next-generation needs and we are developing those products.

Operator: Thank you. One moment for the next question. Our next question is coming from the line of Matthew Prisco of Cantor. Your line is open.

Matthew Prisco: Hey, guys. Thank you for taking the question. Can you provide a little more color on the customer ordering patterns that you have seen? What has changed over the past 90 days, and have you seen any impact from memory dynamics out there or Middle East conflict, either in the order patterns today or in customer conversations?

Rafael Sotomayor: The visibility on our backlog and the distributors’ backlog has improved significantly, which gives us confidence going into the second half of the year that demand is strong. Memory is always a topic, and our customers are doing everything possible to secure supply. This is more of a supply issue versus a price issue. We all know where prices are with memory. If you look at our customers on the consumer side, they are very well-funded and have the ability to get the supply they need. We have not 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 we have.

Matthew Prisco: Helpful. And then maybe talking about the supply backdrop a bit, are you seeing any tightness out there impacting the business as we see those tier-two wafer pricing increases? And while we are talking about supply, can you give an update on BSMC or ESMC timing? Thanks.

Bill Betz: Sure. Let me take that. On the timing of BSMC and ESMC, both are on schedule. For BSMC, the tools are installed, they are going to start ramping soon, and we expect to be up and running to help deliver the approximately 200 basis points of structural gross margin expansion in 2028. Related to other supply factors, yes, different parts of the supply chain are tight, and we do see the inflationary costs that Rafael referred to. If we cannot offset them internally from operational efficiency or productivity, we then have to pass them along to our customers. We are starting to do that in selective areas in a controlled way.

If things get really tight, we will do what we did during COVID to make sure that we protect our gross margins. We are seeing slight bottlenecks in certain parts of the supply chain.

Operator: 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.

Joseph Moore: Great. Thank you. I wonder if you could talk about the growth drivers in the auto space. You talked about seeing your business get better from that. Is that an indication of 2027 model year, or should we think of these as five-year rolling programs? Anything you can do to help us understand what is giving you the confidence to call that an inflection rather than something cyclical?

Rafael Sotomayor: Let me talk about the auto growth drivers. They have become a very important part of the business now, and they are really changing the composition of revenue in auto. In Q1, the growth drivers were north of 45% of the revenue composition. We continue to see growth, and this is now coming from about 39% previously. I think we are going to end 2026 closer to the 50% range as opposed to the mid-40s. They are growing strongly, double digits, driven by our software-defined vehicle portfolio.

The strength of NXP Semiconductors N.V. in automotive is that we have products in the processing portfolio that today do not have equivalents in the market, and they are very well positioned for zonal architectures and central computer architectures. We expect the transition into SDV to be a very strong tailwind and to position NXP Semiconductors N.V. as the leader in automotive, driven by our SDV platform.

Joseph Moore: And is there anything different about that in the China market? I am thinking when you build the car architecture from scratch, it is probably easier to build around software-defined vehicles than if you are in an entrenched architecture. On the other hand, there are local suppliers. Is the China market any different in terms of those growth drivers?

Rafael Sotomayor: It is not necessarily different in terms of adoption of the growth drivers. What is different is the speed at which they adopt the products. For instance, for the S32K5, which is our latest 16-nanometer zonal product with a lot of performance, we expect the K5 to go to production in China despite the product sampling first to Western customers. The speed at which they adopt next-generation architectures is what is different. Regarding local competitors, the shift in architecture also benefits us. Local competitors are likely to emerge in the low end, but the architectural shift to zonal and central compute favors higher processing capabilities and higher redundancy.

China is moving fast to automation, to Level 3 and Level 4 ADAS, which requires more redundancy, better security, and better safety. This is where innovation in MCUs and MPUs will be key to win in the market. We are excited about the transformative move Chinese OEMs are making in architectures and the speed with which they are doing it, because we have the right roadmap for them.

Operator: Thank you. One moment for the next question. The next question will be coming from the line of Christopher Caso of Wolfe Research. Please go ahead.

Christopher Caso: Yes. Thank you. Good evening. First question is about input costs rising. Can you talk about what you are seeing with regard to foundry wafer pricing now and how that gets affected as BSMC starts to ramp next year? What impact is that on you, and perhaps does that provide you with some sort of an advantage if pricing does go up as BSMC ramps?

Bill Betz: The way to think about supply is that BSMC service is one source of supply where we have a bit more control, and we are paying additional capacity access fees to get additional supply. That is more linked to some of our technologies that are mostly in-house and part of the consolidation project we are doing. For other capacity, when you want additional supply above the agreement you entered at the beginning of the year, we are seeing additional charges because capacity gets tight and they may need to add tools to help supply. From the current agreements, when we see those incremental charges, we first try to offset them internally.

If we cannot, then we pass them along to our customers.

Christopher Caso: Understood. As a follow-up, you mentioned in your opening remarks confidence in the Analyst Day targets and that implied double-digit growth for 2026 and 2027. Obviously, 2027 is far away. Is there any particular visibility you have, or is this just confidence that perhaps we have finally turned the corner and could get a good growth year next year? How much should we read into those comments?

Rafael Sotomayor: Let me address that because it is a question on the model. We are doubling down on our commitments for 2027, which will imply, just doing the math, double-digit growth in 2026 and 2027. That conviction emanates from the traction we have in our secular drivers, the traction we have now with data center, and the traction we show in both Industrial & IoT and Automotive. You can get there through different contributions by the different end markets—some segments will be in the low end of the range, some in the high end—but our targets for 2027 seem to be within reach. Internally, we do not see 2027 as a destination—just a milestone.

What is important for us is how we close the year and enter 2028 with momentum in our focus markets. The progress we make in our portfolio and becoming mission critical to our customers gives us conviction. The progress we are making now in 2026 and last year with adoption of our new products makes our path toward 2027 very constructive.

Bill Betz: Maybe I will just add on the secular growth drivers. We have visibility next quarter, the quarter after, and the following quarter. The order intake on those company-specific secular growth drivers is all at the high end or above what we said during Investor Day. It is content, it is ramps of products with design wins that are ramping now. Since they are tracking at or above the high end of the model we provided, we feel very confident this will continue because of the adoption of our solutions.

Operator: 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.

Gary Mobley: I was hoping you could give us an update on the integration of Kinara, Aviva, TTTech—how that is progressing, whether it relates to enhancements to existing roadmaps or full commercialization on an independent basis? Any update there would be helpful.

Rafael Sotomayor: Yes. Let me give you an update. Starting with TTTech, it is a great engineering organization. They have been redeployed to our internal efforts to do the S32K5 zonal reference design. This is a very important initiative. We expect to sample with customers in Q3 this S32K5 zonal reference design that involves not only the K5 but other MCUs and our 48-volt architecture. We are doing it both in the East and the West. We have a high single-digit number of customers engaged in POCs, so it is quite exciting, and we expect this effort to accelerate K5 adoption in 2027.

Aviva Links is a great SerDes platform based on an open standard, very important for SDVs given sensors and displays are multiplying in next-generation vehicles, and all of these are connected to SerDes. Companies are looking for an open platform versus the proprietary solutions they have today. We have customer awards now and expect to be in production in 2028. This is a new TAM for us and a new market that we had not entered; there are two very entrenched competitors, but this open standard allows NXP Semiconductors N.V. to come in and compete with technology. On Kinara, it is a great acquisition directly in the middle of our North Star—intelligence at the edge.

Kinara has been a perfect combination for our i.MX platform, our application processor. It allows us to engage with customers in ways we could not have in the past because we did not have the capability or the credibility. Today, the sales funnel is quite large—literally over $1 billion. We have more than 30 POCs ongoing, and we are on track to have some revenue from the combination of the Kinara asset with i.MX in 2027 and 2028. We are also starting to integrate the Kinara IP into our industrial processors and our auto processors—monolithic integration of the IP—so it will be part of our next-generation processing for our auto and industrial products.

Gary Mobley: Appreciate it, Rafael. I want to ask a more direct question on your comfort with 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 in November 2024. But we have had, of course, the divestiture of the MEMS sensor business. So should we think about the endpoint or milestone for 2027 as about $15.4 billion in revenue?

Jeff Palmer: Hey, Gary. Let me take that modeling question. First, in your calculation, remember you have to back off the sale of the MEMS business—that is just a housekeeping item. What you have heard from both Rafael and Bill today is that we are standing solidly behind our long-term growth rates. At the total company level, that means we are going to hit 6% to 10% at the total company. I know you can back into what that means for 2026–2027, and we will leave that exercise to you. We are not backing away from those targets.

I would add: the design wins we have are starting to go into production, so our clarity and belief in achieving those targets is increasing daily.

Operator: 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.

Quinn Bolton: Hey, guys. Thanks for taking my question. I wanted to come back to the Industrial & IoT business. If I have 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-specific growth drivers? And then I have a quick follow-up for Bill.

Rafael Sotomayor: I think you are right. The strength of Industrial & IoT for us started showing in Q3 last year. We started to grow year over year, and that growth continued in Q4, continued in Q1 with a 20-plus percent range, and that will guide you to the high-30s. The strength is broad based—across all geographic regions and sub-markets. Certain products are driving the growth: the new industrial processing portfolio—those are our accelerated secular growth drivers. What is also encouraging is that we are seeing the core part of Industrial & IoT also growing. This is the part of the revenue that declined last year; now it is back to growth. In Q1, it grew 15% year on year.

So the rest of the portfolio is also recovering. It is broad based now. Not only are the accelerated growth drivers performing, but the core part of our business in Industrial & IoT is coming back. That gives you a flavor of the momentum we have going into Q2 and likely carrying into the second half of the year.

Bill Betz: Maybe I will just put a number on it. The way to think about Industrial & IoT, these secular growth drivers are representing about 37% and they are growing north of 40% to 50%, just to give you a feel.

Quinn Bolton: Great. Thank you. For Bill, you have talked about the 200 basis points that you get from the ramp of ESMC and insourcing or moving production from 200mm to 300mm. Can you give us a sense, as that facility comes online, how quickly do you get that benefit? Do you see it all in one year, or does it take several years to achieve the full 200 basis points?

Bill Betz: It is a great question. Typically, we should start to see it when the factory is fully utilized, which is probably 90% to 95% for that type of factory. It will take several quarters to get the full benefit, depending on the ramp. You will likely get a partial benefit in 2028. When you get the full amount depends on the timing of the ramp, but we are pushing hard to drive it as quickly as possible.

Operator: Thank you. Lisa, I think that will be our last question.

Jeff Palmer: And I think we will pass it back to Rafael to conclude the call today.

Rafael Sotomayor: 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 Semiconductors N.V.’s growth is driven by leadership in SDV, physical AI, and Industrial & IoT. Second, our company-specific growth drivers are performing as designed. Lastly, we are reaffirming our Analyst Day commitments, which implies double-digit growth in both 2026 and 2027. This quarter reaffirms the strength of our 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.

Operator: Thank you. This does conclude today’s program. Thank you all for joining. You may now disconnect.