Release Date: July 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NXP Semiconductors NV (NXPI, Financial) reported Q2 revenue of $2.93 billion, which was $26 million above the midpoint of their guidance.
- The company expects Q3 revenue to be $3.15 billion, reflecting an 8% sequential increase, indicating a return to better than historic seasonal trends.
- NXP's automotive segment is showing signs of recovery, with expectations of mid-single-digit growth in Q3 compared to Q2 2025.
- The company is experiencing a broad-based recovery in the Industrial & IoT segment, with anticipated high single-digit growth in Q3 versus Q2 2025.
- NXP's strategic acquisitions, such as TTTech Auto, are expected to strengthen their competitive portfolio and drive future growth.
Negative Points
- Q2 revenue decreased by 6% year-on-year, reflecting challenges in the market.
- Non-GAAP operating margin in Q2 was 32%, down 230 basis points year-on-year, indicating pressure on profitability.
- Distribution inventory remains below the long-term target of 11 weeks, which could impact supply chain efficiency.
- The Communication Infrastructure & Other segment is expected to decline by the upper 20% range in Q3 compared to Q3 2024.
- The tariff environment continues to create uncertainty in long-term planning for customers, posing a risk to future performance.
Q & A Highlights
Q: Kurt, how do you compare the cyclical signals this quarter to last quarter? Is your confidence in the cyclical recovery rising?
A: Kurt Sievers, CEO: Yes, our confidence is clearly better. The same signals we track have shown improvement over the past 90 days, which strengthens our belief that we are at the beginning of a new upcycle. The signals about the new upcycle have strengthened since 90 days ago.
Q: Bill, how does running the fabs at higher utilization impact gross margins, and how will you manage OpEx if the pending acquisitions close?
A: William Betz, CFO: The impact on gross margins from higher fab utilization in Q2 was minimal. For Q3, we expect a similar minimal impact. Regarding OpEx, if the acquisitions close, we have mechanisms to absorb the costs, and we expect to maintain our long-term OpEx intensity target of 23%.
Q: Kurt, can you discuss the pace of recovery in the automotive segment compared to your peers, and when do you expect automotive sales to start growing year-on-year?
A: Kurt Sievers, CEO: Our Automotive business is accelerating significantly from Q2 to Q3, with mid-single-digit sequential growth expected. The inventory burn at Tier 1s, especially in the western world, is moderating, which will allow us to ship closer to natural demand. We expect this to drive growth without needing macro improvements.
Q: What are the conditions that would lead you to increase channel inventory from nine weeks to 11 weeks?
A: Kurt Sievers, CEO: We are waiting for further solidification of positive signals, such as increased short cycle orders and growing backlog at distribution partners. If these trends continue, we may increase inventory in Q3 and Q4 to remain competitive, focusing on having the right products available.
Q: Can you provide more detail on the visibility trends through the end of the year and into next year, particularly regarding shortages and escalations?
A: Kurt Sievers, CEO: We are seeing positive dynamics, with growing customer backlog and increased short cycle orders. Our growth is driven by content increase and the moderation of inventory burn at Tier 1s. We are confident in our growth drivers, especially in automotive, and expect to meet our long-term growth targets.
Q: How are your auto customers investing in software-defined vehicles (SDVs), and is there an acceleration in this area?
A: Kurt Sievers, CEO: Yes, there is an acceleration in SDV investments. OEMs recognize the competitive advantages of SDVs, such as consumer value and cost efficiency. This trend is crucial for competitiveness, especially against Chinese players who have been early adopters of SDVs.
Q: Can you elaborate on the impact of the TTTech acquisition on your financials?
A: Kurt Sievers, CEO: The revenue contribution from TTTech is insignificant as we are integrating their software expertise into our SDV solutions. The main impact is on OpEx due to the addition of 1,100 engineers, but we have created space in our budget to accommodate this.
Q: Are there scenarios where you could be above seasonal growth in Q4 without increasing channel inventory?
A: Kurt Sievers, CEO: We do not guide for Q4, but the current sell-through trends are positive. We may selectively increase inventory in Q3, and if these trends continue, they could support growth into Q4 without needing to increase channel inventory beyond nine weeks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
