恩智浦 (NXPI) 2007 Q3 法說會逐字稿

Welcome to the NXP Semiconductor third quarter results 2007 investors and analyst conference call on Tuesday the 30th of October, 2007. During the introduction by Mr. Frans van Houten, CEO, and Mr. Peter van Bommel, CFO of NXP, all participants will be in a listen-only mode. (OPERATOR INSTRUCTIONS). Please note this call will be recorded. I will now hand the conference over to Mr. Frans van Houten. Please go ahead sir.

Thanks very much. Ladies and gentlemen, welcome to NXP's third quarter 2007 results conference call. I hope you have all seen a copy of the results, press release and presentation that you can find on our Web site.

Before I commence today's presentation, please be aware that forward-looking statements will be referenced during this call. I refer you to slide number 2 of our presentation, where you will find a short Safe Harbor statement.

Regarding guidance, I remind you that as before, we will mention only guidance for sales for the next quarter to be reported, and no further detailed guidance.

As you see from today's results statement, as well as the recent quarterly statements from some of our peers, the semiconductor market as a whole remains soft. This is a situation which we do not expect to change between now and the end of the year.

Having said that, we are pleased that we have succeeded in delivering numbers towards the top-end of the guidance that we had provided during the call on July the 24th. We then said we estimated low to mid single-digit sales growth on a currency comparable basis. Today we report comparable sequential sales growth of 7.4%, which is a nominal sequential sales growth of 6.1%, with currency comparable third quarter sales coming in at EUR1.211 billion, compared to EUR1.141 billion in the second quarter. While this represents a 2.8% comparable decline on last year's third-quarter numbers, the market this year is a considerably tougher place to operate in. I also point out that these sales figures include only a two-month contribution from our cordless and voice over IP terminal operations, which followers of NXP will be aware were sold during this quarter to the DSP Group.

In addition to increased sales, we have also posted increased sequential EBITDA and margin growth. Overall, the improved results in the third quarter can be attributed to normal seasonal sales growth, improved factory loading, and the positive impact of our business renewal program.

Much of our focus over the last year has been to create a lean and efficient organization with improved margins and increased profits. Many of the important steps we have taken so far this year have been with that in mind. While some of these measures will not feed through until 2008, the business renewal program continues to deliver in this quarter. Particularly pleasing is the utilization rate, which has increased steadily quarter on quarter through 2007, and now stands at 85%. Also our margins have improved compared to the previous quarter, and contributed to a sequential adjusted EBITDA of 226 million. Part of the margin improvement can be attributed to the cost reduction in SG&A (inaudible) as a result of business renewal.

Margin growth remains high on our list of priorities. Margins have decreased from last year, primarily as a result of the weaker sales environment and the impact of the lower US dollar. But we are confident that the aggressive business renewal steps that we are taking will result in further margin improvement. We are simplifying the organization, and are in the process of closing loss-making factories like Boeblingen and Crolles, while shifting R&D to higher-margin products. In addition, we are speeding up our time to market and, with that, increasing the competitiveness of our products. Overall we are well on our way to achieve EUR100 million savings by the end of 2007 on a run rate basis. Also, we remained committed to and are confident in achieving our EBITDA margin target of 5 to 15% through the semiconductor cycle.

Our performance this quarter has been against the backdrop of the euro strengthening against the US dollar. Currency movements had a negative effect of 4.2% on our sales figures compared to last year. From an operational point of view, we are long in US dollars as more of our sales, rather than costs, are dollar related. In the short-term, these exposures are hedged. Our operational performance is, however, strongly challenged by a weakening dollar. The closure of Boeblingen and Crolles will help to mitigate this currency exposure, as we will focus on increasing outsourcing through our asset-lite strategy. We have chosen a capital structure where our debt is largely denominated in dollars as a hedge against the impact of a weakening dollar on our operational performance. The impact thereof, however, is reported in the line financial income.

Now let me turn to the individual business units. I discussed last time the progress that was made in improving the performance of our largest business unit, Mobile & Personal, and I'm pleased to say that improvements are continuing. You will remember that we recently took on new management in the person of Marc Cetto, and he very quickly analyzed the underlying issues in this business segment and took steps to improve performance. In particular, the business unit has been restructured to focus on the mobile terminal space through three business lines -- Cellular, Connected Entertainment, and Sound Solutions. Some programs such as wireless LAN and TV-on-mobile are currently ramping down, while we are putting more investment into the next generation of cellular and connectivity standards gearing up for the future.

There is some way to go, but the signs are very encouraging and customers are responding. For example, we have shipped 24 million system solution chipsets in just the third quarter, a 25% increase on quarter two. You may have seen that we announced today, in fact, that the Mobile & Personal business unit has shipped the 500 millionth RF transceiver, giving us a leading position in the RF CMOS market. This is one of the proof points of the successful integration of Silicon Labs' cellular communications business. Not only has it allowed us to grow market share with our customers, sales of ex-SiLabs products are also increasing. We have worked very hard to make the integration of that business a success, and I'm pleased to say that it is starting to pay off.

I am also pleased to see that the home business has stabilized this quarter. But we also know that our exposure in the analog TV market is still impacting the business [heart], and that we must accelerate our transition from analog to digital. I mentioned last quarter that we expected to appoint a new general manager in quarter three, and I was delighted to announce Christos Lagomichos' appointment. He is rapidly getting under the skin of the business. And although we do not expect to see real improvement in the home unit for the coming quarters, we are executing upon improvements to turn it around. Encouraging are the design wins with some notable clients this quarter, particularly in the area of digital television with three leading television manufacturers, of which the impact will become visible in the course of 2008. At the same time, we are undertaking aggressive cost reductions and refocusing our R&D resources to the key growth areas.

In Automotive & Identification, year-on-year comparable growth is still more than 9% despite the general slowdown in the identification market. This quarter the automotive segment continued to show solid sales and is undoubtedly outgrowing the market. As I said, identification has experienced a slowdown, in part due to inventory buildup at key customers and a delay in the emergence of the RFID and the NFC, near-field communication, segments. We now expect no market growth for the whole of 2007. However, we remain positive about the market outlook for this segment, and we continue to invest in R&D in order to build on our leading market position.

You will remember that due to industry conditions, Q2 was a slow quarter for the Multimarket Semiconductors business unit. And I am pleased to say that the market strengthened in quarter three, and that we consolidated our market share. The business unit had a sound financial performance in the quarter, particularly driven by continued growth of the ASSPs, application-specific standard products, and good operational performance. We also achieved some significant GA design-ins at tier 1 and Chinese mobile handset manufacturers. GA stands for general application.

In terms of IC Manufacturing Operations, I've already mentioned our improved utilization rate, and I also want to draw attention to our recently-started joint venture with the ASE Group in Suzhou, China. This joint venture is a good example of how we are executing on our asset-lite strategy in assembly and test. The primary purpose of the joint venture is to combine our back-end strengths with the industry-leading skills of ASE in test and assembly and packaging.

Thank you. Now I would like to hand over to Peter van Bommel, our CFO, to take you through the financial details of our performance in the third quarter of this year.

Thank you, Frans. In terms of the overall performance of the business, I intend to provide both year-on-year and sequential comparisons in this call. However, when discussing the [individual] performance of the business units, I will restrict myself to sequential figures. The year-on-year figures are of course available in the full report.

Firstly, let's look at the overall picture. Our sales for the quarter were EUR1.211 billion, which is a 2.8% decrease on a currency comparable basis compared to the third quarter in 2006. As Frans mentioned, we came in at the top-end of our expectations with sequential sales growth of 7.4% on a currency and business comparable basis, and 6.1% on a nominal basis.

Third-quarter adjusted [EBITDA], excluding the effects of purchase price accounting, came in at EUR97 million, while adjusted EBITDA amounted to EUR226 million. The decrease of EUR41 million when compared to the same period last year is preliminarily explained by the lower margin as a result of lower sales. Our adjusted EBITDA performance represents a 60% increase on the second quarter.

Now let me turn to the financial performance of the individual business units. All figures that I quote exclude the effects of purchase price accounting and are provided on a currency and business comparable basis.

Frans has talked in detail about the turnaround in the performance of Mobile & Personal, so I won't dwell on it for too long. To summarize, sequential sales for the quarter grew 11.2% to a total of EUR429 million, compared to the EUR400 million that we had in the second quarter. This increase has primarily been driven by Cellular sales, although Connected Entertainment and Sound Solutions also grew. We also saw a significant share of wallet increase with one of our largest tier 1 customers.

[The unit] also recently announced the semiconductor industry's first fully integrated single-chip multimedia solution for entry-level cellphone markets. This is significant because it underscores our commitment to developing wireless technology in emerging markets. Entry-level users in places like China, India and Latin America now desire the same value-added applications available in today's markets -- in today's more mature wireless markets.

In Home, sales amounted to EUR178 million compared to EUR160 million in the second quarter, a sequential increase of 13.3%. Although the unit has achieved good sequential growth, sales are still way off last year. These lower sales were primarily driven by the ongoing decline in the CRT TV market, weak sales in digital TV, and our exit from the (inaudible) DVR and LVD market.

EBITA amounted to a loss of EUR23 million, compared to a loss of EUR24 million last quarter. Next to the lower sales level, the loss in EBITA is primarily related to ongoing R&D investments in digital TV and set-top boxes.

Frans has mentioned that the Home business unit achieved some good design wins this quarter from leading manufacturers in the digital television space. I would like to mention also that we are ramping up with two major US customers in video streaming set-top boxes.

In Automotive & Identification, sales amounted to EUR242 million, a sequential decrease of 1.6%. The automotive operations showed solid growth in the quarter, while the market share of our identification operations remained stable in an overall slowing down market. EBITA amounted to EUR54 million, a decline of EUR8 million compared to the second quarter. In the quarter, the Mifare AFC product successfully won over 10 cities. We also won the Thai identification card project and the UK travel card, and we are pleased that two European carmakers are designing in our latest Flexray product.

Sales in Multimarket Semiconductors amounted to EUR302 million compared to EUR265 million in the previous quarter, an increase of 7%. Again, although showing strong sequential growth, the business unit is behind last year in absolute terms, primarily because of our exit from the mobile display drivers and power rectifiers businesses, and the reclassification of the automotive sensor operations to Automotive & Identification in the second quarter. EBITA amounted to EUR62 million compared to EUR49 million in the second quarter. The weaker performance in power management and standard ICs was more than compensated by strong operational performance in general applications.

Sales in IC Manufacturing increased to EUR37 million from EUR34 million in the second quarter. EBITA amounted to EUR16 million, compared to a loss of EUR67 million, including restructuring charges of 71 million in the second quarter. A better utilization and the cost savings from business renewal contributed considerably to the improved EBITA level. We are on track with the closure of Crolles and Boeblingen, and the restructuring in (inaudible). In addition, the restructuring in the Philippines is progressing according to plan.

Lastly, sales from our Corporate and Other segment came in at EUR23 million compared to EUR50 million in the second quarter.

Our book-to-bill ratio was [101] in the third quarter, and factory utilization rose from 74% in Q2 to stand at 85% in the third quarter.

At the end of the third quarter, our cash position amounted to EUR681 million compared to EUR540 million at the end of the second quarter. Net cash provided by operating activities in the reporting period was EUR202 million. The cash proceeds from the divestment of business, mainly the cordless and voice over IP terminal operations, amounted to EUR128 million, while our CapEx amounted to EUR97 million.

In terms of our outlook, we do remain concerned about ongoing currency volatility, as well as global macroeconomic factors that could impact sales performance. In terms of the fourth quarter, despite the improvements in the third quarter, the market remains soft, and visibility in the order book remains short. Given our book-to-bill ratio, we provide an outlook of low single-digit sequential sales growth on a comparable basis.

Thank you. We would now like to open to your questions. Jan Maarten, can you take over?

Thanks, Peter. Hello. This is Jan Maarten Ingen Housz again. Most of you already know me; I'm responsible for Investor Relations within NXP. As last time, I will facilitate as necessary this Q&A session, addressing the questions to Frans and Peter. Again, would you please limit yourselves to one question. This indeed will give more people the possibility to ask questions, and any further questions then may be answered after an [eventual] second Q&A poll by the operator, or may be addressed to me directly after the end of the call. With that, I would like the operator to start the Q&A session.

(OPERATOR INSTRUCTIONS). Jeff Harlib, Lehman Brothers.

I was wondering if you could bridge for us the sequential improvement in EBITDA? You talked about 100 million run rate savings at year end. It seems like you got a lot more benefit than the savings you were talking about. It looks like a lot of it is in the corporate line. But OpEx didn't go down that much. I'm wondering if you can just try to bridge us with that sequential improvement in gross margin and EBITDA margin.

I'm happy to do so. First of all, I think, yes indeed, business renewal is delivering. We already indicated last time that we were speeding up their actions. That becomes clearly visible, as you rightly noted, in the selling, general and administrative [course] on a comparable base. We reduced in the third quarter with 9 million as compared to the second quarter, so that is taking out all the one-offs.

When you look to the (technical difficulty) EBITDA, the difference between the 226 and the 141, the main reasons for that is, on the one hand, the better loading in the manufacturing operations in combination of the effects of business renewal in the manufacturing. That is delivering an improvement of approximately [13] million. We have of course higher sales as what we already indicated, 1.211 billion versus the [1141]. That's in combination with the better mix that we have seen (technical difficulty) [40] million improvements. And the SG&A, what I mentioned earlier, is delivering an improvement of 10 million. So that gives you, roughly, the breakdown of our improvements in EBITDA in the third quarter as compared to the second quarter.

And just a follow-up would be just where you stand in terms of exiting from the Crolles JV, and when Crolles should be out of your numbers.

As already indicated in the previous calls, the contract that we have with regard to Crolles is finished at the end of this year. So, as from the 1st of January 2008, the Crolles numbers will not be any longer in our books.

Thank you.

Aaron Husock, Morgan Stanley.

Thanks for taking my call. I was wondering if you could give us a little bit more color on what your guidance for Q4 assumes for your Mobile & Personal segment? Then I have a quick follow-up.

We do not specifically break out guidance per business unit. But I think what you can observe in our third quarter that the mobile business performed very well. And we certainly expect some of that positive momentum to continue.

Great. Would you expect -- do you expect mobile to grow faster than the total company in Q4 sequentially?

I don't try to be too precise about it. I make it competition between the business unit heads who grows the fastest, of course. But at this time, I cannot give you a specific answer, unfortunately.

I was just wondering, have you started to ship your new version of the AeroFONE to any of the top-tier handset customers yet? And if not, when do you expect volume shipments of that part to begin?

The porting of the NXP software stack on the AeroFONE hardware resulted in first samples being in the hands of our top customers already in August. So, sometime ago. On the basis of that, our customers are designing their product. We expect shipments to start late in this year, and volume to be in the first quarter. Having said that, the AeroFONE is shipping today to other customers. But that is then in the -- without the NXP software stack, and still is the older software that SiLabs already had made available. So today we are already shipping this product.

Sundar Varadarajan, Deutsche Bank.

Thanks. Just a question on the utilization. It went up pretty nicely this quarter. How much of that was kind of influenced by just volume growth, sequential volume growth, versus also the benefits of your (inaudible) consolidation? And as a follow-up, do you expect to see kind of overall capacity continue to be reduced in Q4 versus Q3?

Let me first answer the utilization part. The utilization part is basically completely driven in the third quarter by volume growth. As (inaudible) explained last time, we will still have the Crolles capacity available until the end of this year, as well the Boeblingen capacity. So, there will be a further consolidation in the beginning of next year, so that will help the existing factory to be better loaded. You look to the utilization, at the beginning of the fourth quarter as compared to the third quarter, then we see that we are still, as far as utilization is concerned, in the mid 80s.

And in terms of just one follow-up here, you did say that the (inaudible) business revenue was included only for two months. I'm assuming the guidance that you're giving for Q4 already strips out any revenue contribution from that business. Is that correct?

That's correct.

Alaric Hu, Bank of America.

My question is just on the analog CRT side. Could you give us a little bit more detail on where you think a baseline level might be?

The CRT TV business was a very sizable multi-hundred-million business for us last year. That has eroded very considerably. And in the meantime, much less of that amount is remaining. Having said that, it is still a very sizable amount, and it represents approximately 50% market share in the market. We see the market share in CRT TV holding up, if not improving even. And while unit prices are low, we do feel that we can continue this as a profitable business. We think any inventory overhang has been eliminated, so now it is really a function of how the sellthrough of CRT TVs will happen in the marketplace. So we will continue to extract value from this segment, and I do not expect, let's say, very drastic changes from month to month or quarter to quarter at this time.

Thank you very much.

Eric Rubel, MTR Securities.

Thanks for taking my call. If I could also ask a question about the Home unit. If you could talk a little bit about your digital TV design wins; you mentioned that you had some in Q2. You also talked about some digital design wins. Could you tell me what [PAL] sizes you're engaged with? Are these 32-inch and above design wins? And are they tier 1, or in the ODM segment?

I'd be happy to give some color on this. The design wins with three different top-tier customers are in part fully-integrated one-chip digital TV platforms for typically the range between 21-inch and 42-inch. There's also included in that statement a digital bolt-on, and this is where typically the customer adds our digital parts to somebody else's analog chassis. But of course, it is good to be in the digital part going forward. And that bolt-on is, if I recall well, also in that similar screen size range being deployed.

Thank you, gentlemen.

The revenue from these design wins, by the way, will only start in the course of 2008.

[Michael Bloom], BlueBay Asset Management.

It's (inaudible) of BlueBay. Am I right in thinking that the 226 million of [EBITDA reports] does include an EUR87 million gain for the cordless and voice over IP terminal divestment here?

The adjusted EBITDA of 226 million doesn't include that.

It does not include that?

Does not include that.

Okay. Can you tell me what the [EBITDAR] of [SSCC] was for the quarter?

That was in the third quarter USD70 million.

70?

USD70, compared to USD75 million that we had in the third quarter of last year.

Can I just clarify that first point? Because it seems on page 6 of your press release, to -- it says to arrive at adjusted EBITDA of 226 million, the following adjustments were made. Other items total 73 million positively, including amongst other things an 87 million gain related to this asset sale.

What we have done in the presentation that we have put on the Internet, the PowerPoint presentation, there you'll find (inaudible) we take out the Q3 2007 numbers where we started 132 million, where we come to an EBITDA of 264 million. We did -- we add back the minority interest, we add back the 7 million of restructuring, and we deduct other items of 60 million, which includes the 87 million of the sale of the cordless business. And that leads to that 226 million adjusted EBITDA.

Mark Harrington, Royal Bank of Scotland.

Going back to Crolles, if I could, I know you're not willing to give a range in terms of what you expect to receive when you exit Crolles. But could you perhaps let us know another way, let us know exactly what you would be disposing of so we can form our own views, or perhaps what sort of -- how we should think about the net financial impact, including lower costs that you won't have to pay? And in terms of timing, do you expect -- do you still expect the exit to take place in the first half of next (technical difficulty)

There are a lot of questions. Let's see if I can answer all of them. First of all, we will (inaudible) all the equipment that we own now in Crolles, and as you might know, Crolles is an entity where we own 31% of that. So we own 31% of the total equipment. We expect there's a lot of interest in that equipment, so we are in negotiations with parties. And we expect that those negotiations will be concluded in the coming period. We will leave Crolles completely by the 1st of January, and that will lead to the situation that all the running costs that we have at this moment in Crolles, be it the cost of manufacturing and the cost of development, will be foregone as from the 1st of January onwards.

What is the amount of that approximately?

The amount that we are talking about in Crolles is around 70 million year-to-date.

US or Euros?

Euros.

Year-to-date?

Yes.

Okay, thank you.

I want to add that a small part of the R&D will be continued centrally in NXP.

Lee Zeltser, Merrill Lynch.

Can you just walk through some upcoming initiatives? We're still looking for a good amount of cost savings on the SG&A and R&D lines. Talk about some of the initiatives that you plan to implement near-term that would cause some savings there.

We definitely will continue our business renewal efforts, and business renewal covers lowering the breakeven point, as well as manages to improve margin and improve sales, and leverage our asset base. So this (inaudible) broad program. With regard to the element of cost savings, which is one of the programs within business renewal, we have said earlier in the year that we target to achieve at least EUR250 million in cost savings, of which we intend to achieve on a run rate basis by the end of '07 at least 100 million.

In the meantime, by the third quarter, we have already achieved some EUR90 million on a run rate basis. So we are well on the way to achieve or maybe even exceed the 100 million. And then, of course, in 2008, we will continue so that we will achieve the 250 million by the end of 2008. And apart from these cost measures, we will work on things like sales up, margin improvement, and so on and so forth.

Could you talk a little bit more specifically, though, about programs that you're looking to implement? So, maybe if you can give some examples so we can better understand where you would get the cost savings in SG&A and R&D?

Let me give you a few examples on that. Part and parcel of the total cost savings that we have announced is also the closure of certain factories. So what we just mentioned is the Crolles actions that we are taking, so that will lead to substantial saving as from the 1st of January onwards. The other thing is the closure of the Boeblingen operation. So that will take place in the course of the first quarter of next year. So that will also lead to a structural cost saving. A third important (technical difficulty) is in the IT area, where we -- we're working very hard on building our own -- coming completely independent of Philips. We can go now into the next rounds, and that means that we will build systems which are more simple and more related to the semiconductor industry as a whole. And we expect that it will also lead to substantial savings in the forthcoming years.

[David Fitz], Citi New York.

Thank you for taking my question. Could you talk about the normal seasonality pattern for your business since several of us are new to this company? I want to try to get a more seasonal trend from what's remaining in the business. Secondarily, could you comment on the level of inventory and what you think about that, and how you think about that going forward?

First of all, the normal seasonality. When you look to the different businesses that we are active in, you have to make a distinction. When you look to the Automotive & Identification business and the MMS business, they don't have that much of seasonality. The seasonality is really in the consumer-related businesses, being Mobile & Personal and Home, where the Christmas season is, of course, very important. For the Company as a whole, that leads to a situation that in normal years, we do approximately 47 to 48% of our sales in the first half of the year, and 52, 53% in the second half of the year.

When you look on this moment to the inventories in the industry, you see on the one hand that there is -- the inventories in the total supply chain seems healthy. There are no signals that there is an overstock situation on this moment. When you look to our own inventories, you can see that also in out balance sheet when you compare there the situation with last year that we are nearly 100 million lower in inventories as what we had in that particular period. However, there's a lot of uncertainty on this moment in the market. When you look on this moment what's going on in the fourth quarter, you see that the order book is filling well, but it's all in short order, so there are no long orders coming in. And that gives, I think, a good description about what is going on on this moment. And while on the one hand inventories are low, on the other hand there's a big uncertainty due to the macroeconomic circumstances on this moment. And the real test will be during the Christmas season if selling out is -- selling through is going on the same level as what we all hope and expect it for.

A final follow-up. Have you looked forward at some of the CapEx? When I look and do some of the modeling, I'm putting flat CapEx year-to-year for 2007 versus 2008. Is that something reasonable?

What we always have indicated is that we will have a CapEx level of somewhere between 6 and 8% of [our] turnover, and that's very strongly focused on the back-end operation, and that's volume-driven. So in the moment that we sell more (technical difficulty) and adding to that the complexity of system solutions, that will -- then we will add also capacity to that. That's within that ballpark of 6 to 8%

[Jake Kimley], Morgan Stanley.

It seems like in this quarter a lot of the cost cutting is starting to come to fruition. Can you refresh us on what your long-term goals are for the business for SG&A as a percentage of revenue and R&D as a percentage of revenue, excluding Crolles?

What we always have indicated in earlier discussions that we had is that we would like to bring our SG&A and R&D (technical difficulty) towards the level of around the 11 to 12% in SG&A, and around 18% in R&D. And as you can see from what happened in the third quarter, then you see that (inaudible) R&D cost as a percentage of sales came down, [as our] SG&A expenses. Then you would take out the [16] million of one-offs that we had in the quarter, where SG&A cost in the third quarter (inaudible) a level of 12.8%.

Do you think that the results in the third quarter kind of mark an inflection point for the business where you're starting to get the mix of revenue that you're looking for, and it's coming together with the business renewal plan?

From a cost point of view, I think indeed we can enjoy that we are getting the fruits of the business renewal. In that sense it's an inflection point. From the revenue side, I think we have also said in our press release that part of that -- a large part of that is due to the normal seasonal pattern where the third quarter is somewhat stronger than the prior quarter. And as such, we should, therefore, not anchor that in and say from now on we will build on the third quarter upwards. We are dependent on the consumer electronics markets to some extent. And as you know, those are seasonal in nature.

Definitely the intention is to continue to improve our sales performance. Earlier question related to that. We have strengthened the sales management. For example, in China, we do see the positive effects of that. We have strengthened the organization in Korea. We see some positive effects there. We think we still have a lot of work to do and, therefore, we also have a lot of positive opportunities that I would like to cash in on. But it remains to some extent a cyclical business.

Shall we move on to the next in the queue?

[Pria Veswenapan], [Front Line].

Thanks for taking my question. I'm just trying to get some sense of your future revenue targets that you're stating. Is there a disconnect that is coming [up]? One, the loading factor is improving quarter on quarter very well. Secondly, you have top-line growth coming in on a quarter-on-quarter basis. But at the same time, your book-to-bill ratio seems to be declining (inaudible) quarter on quarter. Is there a disconnect between the first two and the book-to-bill ratio, and does that indicate some weakness that we should expect going forward in 2008? And is that why you also think that the visibility is low on the revenue side? That's my first question. If I may be allowed a follow-up. Thanks.

I think that the key issue we have on this (inaudible) with the lower book-to-bill ratio that you see -- at least when it's above 1, it's always still good there. Let's not forget that. But it shows the uncertainty what we see on this moment in the markets. There are no long-term orders coming in; it's all short-term related. And what I said earlier already, the loading of the factories is okay. It improved in the third quarter towards a level of 85%. It's still stable in the mid 80s. So it's more a reflection of the uncertainty that we see on this moment in the market than anything else.

[I'm able] to add there (inaudible) we spoke about seasonality. And when you have an up season, you would then also have by definition a down season. For example, quarter one is always a somewhat lower season. And given the time lag between ordering and shipments, it would be normal that we are now heading towards a situation whereby the orders are somewhat lower because of the lower first quarter that one would have in a normal seasonal pattern. So I don't think that there is any contradiction in that earlier statement.

Thanks for that. Just quickly jumping to cash flow a bit. You had an increase in payables of 197 million in the previous quarter, and that's above 172 million this quarter. So what does -- what does this really reflect, and what should we be expecting going forward in terms of payables as a part of your working capital? Thank you.

What you see is the normal seasonality in our accounts payable. You see two effects. You see on the one hand the impact of the seasonality in our accounts payable position. Our factories are better loaded, we repurchase as a consequence more, and that leads to a higher accounts payable situation that's, by the way, the same as what you have seen last year.

The second thing is that as an independent company, we learned that we could improve our working capital further. And we have taken some actions there. So there's also structural improvement in the sense of higher average accounts payable, what we call days payables outstanding, than what we had in the past.

Is this likely to continue, or kind of flatten out over the rest as the seasonality kind of evens out?

(multiple speakers) combination. As days of payments outstanding, we expect that it will be stabilizing. But as an absolute amount it will, of course, be related to what is happening in the sales numbers.

I suggest that we move onto the next.

(inaudible), WestLB.

My name is (inaudible) from WestLB (inaudible) Asset Management. My question is how will the low single-digit sequential sales growth in the fourth quarter be reflected in EBITDA?

First of all, we are talking about low single-digit growth in the fourth quarter versus the third quarter. And as what we have indicated already earlier in the call, we don't give any forward-looking statements, with the exception of the sales figures (inaudible) we have done so far.

So will we see the same improvement like three quarter '07 compared with second quarter '07?

Sorry, but we don't give any forward-looking information with regard to EBITDA.

(inaudible) utilization rate better in the [fourth] quarter?

What I stated on this moment the utilization rate is more or less the same as what we saw in the third quarter.

Around 85%?

In the mid 80s.

However, I may want to give you the hint that when we speak about normal seasonal patterns, then eventually that will also find its way into factory loading. So also there, you need to take that into account.

Shall we move on? Because we still have quite a few people in the queue.

[Mike Lanier], AIG Houston.

I just had a couple quick ones. First of all, in ST Micro's call they said they were going to buy out one of the Crolles partners. Are you the one?

We cannot give any comments on that. Peter said previously that we were still negotiating with several parties.

You gave some detail earlier in the call about the difference between the 226 and the 141 in the EBITDA numbers, and I added up that's an $85 million difference. I got 13 for better loading, 40 for better sales, and 10 for lower SG&A. But that's only 63 of the 85. Did I pick up those numbers incorrectly?

It's 3-0 -- it's 30 for the better loading.

30 for the better loading. Okay.

When you add that up, it's 80.

80 of the 85. And the rest is just miscellaneous?

The rest is a combination of -- it's miscellaneous, yes.

Is it correct when you said of the 100 in savings you were targeting for the year-end that you've already -- did I hear correctly that 90 of that 100 run rate is reflected in the third-quarter numbers?

That's correct. Let's move onto the next, operator, please.

Robert Hopper, UBS.

Just back to the utilization for a second. I guess maybe if you can help me understand a little bit -- I think you mentioned that it's at the same level that you were in the third quarter. How much of the improvement from the third to fourth -- second to third quarter, I'm sorry, if any was related to reduced outsourcing on the front end? And if you can give us the mix of internal versus external manufacturing at this point in time.

What we had in the third quarter was that we had outsourcing as an average between 12 and 15% of total manufacturing requirements. So there was no reduction of outsourcing in the third quarter as compared to the second quarter.

On flat utilization, do you think you'll be able to see some gross margin expansion again through cost-cutting on the COG side? And lastly, on the mobile operating margin, there was a pretty substantial uplift in that, more so than (inaudible). If you could give us a little bit of color as to how you were able to achieve on a sequential basis a $100 million improvement in operating income in that segment on a 40 million or so increase in the revenue. Just trying to tie that up. Thanks.

Your first question -- as what we said earlier in the call is what are the actions that we have taken to improve the situation in (inaudible) gross margin. That's the closure of Crolles. It's the closure of Boeblingen. So [those are] the actions that are well underway. On the other hand, what we already have indicated also on earlier calls is that the price pressure will remain in the semiconductor industry. So part of all the savings that we are going to realize will be eaten up by price decreases that are foreseeable in our industry. The second question I didn't grab completely. Can you --?

I think I actually got that answered. The operating improvement in the Mobile & Personal business on a sequential basis. Was that mostly driven by the gain on the asset sale? I think it's 95 million excluding PP&A.

Yes, that's correct.

So that's all driven by that. Okay. Thanks.

Let's move to the next.

Guy Baron, Credit Suisse New York.

Just quickly here, at what point do you start to make progress towards further outsourcing front-end capacity?

The closure of Boeblingen and Crolles will result partly in bringing the load of those factories to our factories in Hamburg and (inaudible), and partly to third parties.

Secondly, the advanced manufacturing that is 90 nm and below will all go to outsourcing parties. Because after the Crolles closure, we do not have any more capacity in those nodes. And finally, when we increase sales, we can assume that a relatively-high proportion of that will find its way also to outsourced parties. I've always said that our goal is to achieve outsourcing in the range of 30 to 40% in our planning period. So let's say by 2010.

Can you just clarify how much capacity is now being reflected by Crolles?

We need to look at that.

Or just a sense of percentage, do you have that, of what your total (multiple speakers)

The Crolles factory is a pilot, an R&D factory. So, if I recall, 2500 wafers a week; that is a very small number compared to our total capacity. But we'll look it up, and during one of the next questions we'll interject it and answer you in that way.

Great. Just a quick follow-up. Can you maybe talk to what you're seeing or have seen in the quarter in the distribution channel, which some had indicated was showing some weakness?

I think the distributors, the channel remains very, very cautious, partly also because these distributors have all adopted working capital optimization strategies. And where in the past they were going to take inventory, these days distributors take very, very little inventory. And there for the moment they would slow down, we immediately would see it. At this moment I do not have those signals.

We have two more (multiple speakers)

To answer your question about Crolles, Crolles is approximately 6% of total capacity.

Let's move on.

Thomas Egan, JPMorgan.

Thank you for taking my call. Just trying to understand the Automotive & Identification growth a little bit, a clarification and then a question. The clarification is, if I'm looking at comparable growth, you have the reclassification of the sensor operations from multimarket in both '06 and '07. Is that right?

That is there for 2007 only. In the numbers for 2006 we didn't include that.

And then the question is, could you help us think about what's going on in the overall market for identification? You talk about the market slowing. Does that mean that it's in decline? Does it mean that it's -- growth is going down? Could you help us understand how we should look at that in the context of the total segment that you have for Automotive & Identification?

I'd love to explain that a bit. First of all, you need to think of identification as a whole string of vertical market segments. For example, you have smart cards, you have SIM cards, you have chips for electronic passports, you have the RFID market, you have near-field communication, and so on and so on. So there is a long-range series of vertical application segments.

Last year we saw a huge growth in the so-called electronic passport market. And from a very low level, that market blossomed to over 150 million in that year. What we have realized is that many countries have stocked up on electronic passports during 2006. And after their initial stocking up, they have resorted down to just replenishment of the actual passport issues. And as a consequence, the sales -- follow-on sales are lower. I think this was misunderstood by many market watchers, who thought that the same level would continue forever.

A second market segment that I may want to mention is national ID cards. We believe that many countries will adopt national ID cards with chips in it, but that all goes through tendering processes, and the actual adoption has still in most countries not taken place.

The third example is RFID for supply chain. I think Wal-Mart is the most notable retailer who has been talking about it, but the actual rollout of supply chain RFID chips has been minimal. And therefore, this market segment has not yet flourished. Now, eventually we believe that all these markets will grow tremendously. But -- so the ID market basically grows by leaps and bounds, and historically also has had interim plateaus, and then regained growth one or two years later.

So just from an industry perspective, not specifically NXP, how should we think about that market?

I think you should see it as a highly innovative, highly attractive market in which NXP is positioned as the leader. We are typically pursuing the higher-value segments. We are not in commodity segments like SIM cards for mobile phones. So we are well-positioned in a market that has still an enormous potential. But sometimes we need to have patience before that potential is unlocked.

Operator, can we move to the last person? I think we can handle one final question.

[Patrick Wann], SCM Advisors.

Thank you for taking my call. A couple questions. On the CapEx intensity, the CapEx as a percentage of sales dropped to 9% this quarter versus last year's 13%. Long-term, how should we think about CapEx as a percentage of revenue?

CapEx as a percentage of revenue will be somewhere between the 6 and the 8% on an annual base.

Is that just maintenance level, or that's incorporating (inaudible)?

That's a combination of two things. First of all, it will be maintenance level, especially for our front-end operations. We still have a lot of front-end operations, and there we have to do certain minimum maintenance on an annual base. On the other hand, we will have extension of capacity in the back-end operation. We think that we have a competitive advantage in that area. And we are -- we are -- based upon the [extra] requirements that we have, extending there the capacity as when we need it.

Great. Second question is the -- I just want to drill down a little bit on the 4Q revenue guidance. Low single-digit. Is that because of the weakness in ASPs, or there's some end-market weakness? I'm surprised to see (multiple speakers)

If I may take you back to last year, then we saw a sudden drop in demand in December. And that was because the electronic goods manufacturers saw that the sellthrough in their end markets was disappointing. Peter van Bommel said earlier that the order book is filling well for October and November. (technical difficulty) we have at this time not yet much visibility on December. We just want to be cautious that if another disappointing December would happen like last year, that that would have an effect on our sales.

Operator, I think that was it. Frans, I don't know if you want to say any concluding (inaudible)

As before, I think, NXP is on the right path for structural value creation and improvement. I understand that this is still a business where you have many questions, and I thought this was a very good hour where further insight was built. Please do not hesitate to contact Jan Maarten Ingen Housz directly if after this call you have further questions; he will be most happy to provide as much insight as we can give, within the limits, of course, of the disclosure policies that we have. Thank you very much, and I wish you a good day.

This concludes the NXP Semiconductor third-quarter results 2007 investors and analyst conference call on Tuesday the 30th of October, 2007. For any further questions, you may contact NXP's Investor Relations department. Please visit their Web site, www.NXP.com/investor. Thank you for participating. You may now disconnect.