恩智浦 (NXPI) 2008 Q1 法說會逐字稿

Welcome to NXP Semiconductors first-quarter 2008 results investors and analysts conference call on Tuesday, May 6, 2008. I will now hand the conference over to Mr. Frans van Houten. Please go ahead, sir.

Thank you very much. Ladies and gentlemen, welcome to NXP's first-quarter 2008 results conference call. I hope you have all seen a copy of the results, press release, and presentation, which you can find on our website.

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.

I should also add that following requests from the investment community to ensure our numbers are more comparable with our peer group, as of January 1, 2008, we have begun to report our results in US dollars. As a result, all numbers that refer to the first quarter in this call are quoted in US dollars.

First of all, I am very pleased to be speaking again to you so soon after the announcement of our wireless joint venture with STMicroelectronics. This announcement was a major milestone in our ongoing strategy to create leadership positions across our business and will also provide us with $1.5 billion in cash to pursue this strategy more aggressively.

Just in the last few days, we have announced the acquisition of Conexant's Set-top Box operations, which demonstrates our view that further consolidation is necessary and also signals another step in the turnaround of the business unit Home.

Together with our first-quarter announcement concerning our joint venture with Thomson to create a leader in the can tuner business, you can see that we are executing swiftly on our leadership and derisking strategy.

Now let me turn to the results for the first quarter. I will start by saying that the first quarter is seasonally a weak one for NXP. This, combined with the soft semiconductor market and a weak dollar, led to relatively pessimistic sales guidance at the time of the last call of a sequential sales decline of between 9% and 13%. Actually, with a first-quarter sales figure of $1.519 billion, we were able to achieve a sales level in line with our guidance provided, as the result of better than anticipated sales in both the MultiMarket Semiconductors and Automotive & Identification business.

We have realized a sequential decline of 7.5%, which year-on-year translates to a comparable growth of 0.8%.

I'm pleased to see the improvement of the gross margin in this quarter, which amounted, excluding PPA effects, to $582 million compared to $480 million in the corresponding period last year. Excluding the PPA effects and incidental items, the gross margin improved to 38.8% compared to 35.5% in the first quarter of 2007.

This improvement was strongly driven by the higher utilization rate of 87%; secondly, the Business Renewal cost savings; and thirdly, product range improvements. The savings from Business Renewal continued to contribute to our margin improvement and therefore to our operational profitability. This continues to be a key focus in our strategy.

We would like to reiterate that we are on track to achieve the $375 million of cost savings -- that is the same as the original EUR250 million -- on a run rate basis by the end of 2008.

In the first quarter, we ramped down the production of the Boeblingen factory. This plant has now been operationally closed and we're in the process of selling the assets, the benefits of which will be realized in the second half of this year.

I remind you also that we will also benefit from the sale of the second tranche of the assets from Crolles in the third quarter.

In terms of our cash position, you will see that it halved in the first quarter from $1.041 billion to $519 million. The $86 million cash payment for the GloNav acquisition was of course partly responsible for this.

However, the reduction in cash is mainly attributable to changes in working capital, reflecting the seasonal pattern we see at NXP and which I discussed earlier in the call. The working capital is adversely affected by a combination of a lower level of accounts payable, due to lower activity in Q1 versus Q4 of 2007, and an increased level of receivables as a result of increasing sales at the end of the quarter.

In order to keep our cash position at a reasonable level, as well as in view our announced acquisition of the Conexant Set-top Box operations, we have decided to draw $450 million under the revolving credit facility that we have available from a syndicate of banks. This drawing is taking place one of these days.

As I mentioned earlier, our performance -- and in particular our cost base -- still suffers from a weak dollar versus an expensive euro. We're seeking to reduce our exposure to the euro; and the closure of Boeblingen and Crolles, of course, already help. However, it does still challenge our operational performance.

In terms of the individual business units, Peter van Bommel will go into the specifics of their performance. But overall, I'm pleased that we have seen a strong gross margin improvement from our Home business in the first quarter, as well as the ramp up of the digital TV accounts. The business is benefiting from the turnaround measures that we have taken and is on course to break even sometime in the second half of the year, although this depends on the overall market in terms of sales performance. And of course, it also is not yet taking the Conexant acquisition into account.

Automotive & Identification continued to perform well. MultiMarket Semiconductors had a solid performance once again.

With regards to Mobile & Personal, let me reiterate some of the points that I made at the time of the announcement of the joint venture with STMicroelectronics. The combined venture has been created from successful and complementary businesses that together generated $3 billion in revenues on a pro forma basis in 2007, and that will own over 3,500 patents, and which will be able to compete effectively with the other companies active in this wireless semiconductor field, notably TI and QUALCOMM.

Most importantly, it will be among the few companies with the scale and expertise to continue to make the R&D investments necessary to achieve market leadership in the wireless and mobile multimedia semiconductor markets. The combined pro forma R&D spend of the announced joint venture was in the region of $800 million in 2007, a figure that is comparable with those market leaders.

In NXP, we intend to step up R&D of our remaining businesses based on new innovation and growth opportunities which we have defined and identified in our Roadmap for Leadership process. Apart from 20% stake in the new venture, we will receive $1.55 billion, which we anticipate will be received upon closure in the third quarter, while ST will contribute a further $350 million in cash to the venture.

Most importantly, this transaction allows NXP to focus on strengthening and achieving leadership positions through the remainder of our portfolio and gives us the financial flexibility to do just that.

Prior to this transaction, we considered that we had the leadership positions in approximately 63% of our overall business. Following the transaction, thanks to a mix improvement, we believe that the figure will go up to around 76%. And we are, of course, keen to improve that further.

We now intend to focus on completing the restructuring of our Home business unit and accelerate growth there, as well as expand our position in the BU Automotive & Identification and in BU MultiMarket Semiconductors.

Thank you, and now I would like to hand over to Peter van Bommel to take you through the financial details of our performance in the first quarter of the year.

Thank you, Frans. In terms of the overall performance of the business, I will provide both year-on-year and sequential comparisons for the quarter. However, when discussing the individual performance of the business units, I will restrict myself to year-on-year figures. All figures are quoted in US dollars.

Firstly, let's look at the overall picture. Our sales for the quarter were $1.519 billion which represents growth of 0.8% on a comparable base compared to the first quarter of 2007. This represents a sequential sales decline of 7.5% and a nominal sales decline of 9.5%.

First-quarter adjusted EBITDA, excluding effects of PPA, came in at $183 million, which is the same level as that achieved in the first quarter of 2007 and a sequential decline of $166 million, which is mostly related to the impact of the seasonality of our business.

Adjusted EBITA amounted to $41 million compared to $4 million in first quarter of 2007 and $148 million for the fourth quarter of 2007.

Now, let me turn to the financial performance of the individual business units. All figures I quote exclude the effects of Purchase Price Accounting and are provided on a comparable basis.

In Mobile & Personal, sales amounted to $488 million compared to $451 million for the first quarter of 2007, a 7.8% increase. Stronger sales of cellular systems and Portable Sound Solutions were partly offset by lower sales in Connected Entertainment.

The adjusted EBIT in first quarter of 2008 was a loss of $15 million compared to a loss of $21 million in the first quarter of 2007. The improved profitability was mainly driven by the higher sales and improved margins.

We closed the acquisition of GloNav in the quarter. This has given us immediate access to market-proven GPS products and technology, and allowed us to achieve several GPS designs with personal navigation device customers and other customers.

We also had a great design win with Samsung's 3G handsets and achieved several RF wins at a number of top tier handset manufacturers. The business unit also demonstrated the world's first software-programmable borrowing LTE modem and launched the smallest FM stereo radio IC on the market, making it easier for users to receive traffic updates and other applications.

The Home business unit suffered from a weak market environment, in particular in CRT-TV and analog LCD, which continues to decline, although this was partly compensated by higher sales in [3V fontem]. Sales amounted to $205 million compared to $229 million in the first quarter of 2007, a decrease of 6.1%.

More encouraging was strong gross margin improvement in Home, which benefited from a better product cost and mix and a lower cost base as a result of the restructuring being on track.

The adjusted EBIT in the first quarter of 2008 was a loss of $19 million compared to a loss of $24 million in the corresponding period last year.

We announced a joint venture with Thomson in the first quarter which will give us leadership in can tuner modules. We also achieved the first design wins with TV543 at several top tier TV brands and announced that the HDTV picture improvement processor, the PNX5100, was in production at top tier TV brands.

In Automotive & Identification, sales continued to be strong. Sales amounted to $337 million, compared to $301 million in the first quarter of 2007, a comparable decline of 1.5%.

The nominal sales growth was positively impacted by the reclassification of the sensor operations from MultiMarket Semiconductors. Automotive continued to outgrow the market, while Identification in an overall weak market, particularly in e-government, showed slower sales compared to the first quarter of 2007.

Adjusted EBIT in the first quarter was a profit of $66 million, compared to $69 million in the first quarter of 2007.

In automotive, the effect from higher sales and improved product margins were offset by increased investments in R&D. In the quarter, we shipped our 2 billionth automotive transceiver to Bosch and achieved some good design wins with Visteon and Metro, amongst others. We also introduced the MIFARE Plus smart card IC, that offers a breakthrough in security and performance.

Also, I am pleased about today's announcement that Siemens and NXP developed the world's first GPS GSM-based full system for private vehicles.

As Frans said, the performance for MultiMarket Semiconductors this quarter can be described as solid, as the business unit maintained market share in a really tough market. Sales amounted to $406 million, compared to $418 million in the first quarter of 2007, a comparable decline of 1.4%.

Nominal sales were negatively impacted by the reclassification of the sensor activities to the Automotive & Identification business. Strong sales in general application microcontrollers and regained traction in RF products were offset by weak sales in the computing, mobile, and television segment due to soft market conditions.

The adjusted EBIT in the first quarter was a profit of $66 million, compared to $84 million in the same period of 2007. The lower EBIT was mainly driven by lower utilization of MultiMarket Semiconductors' manufacturing facilities.

Q1 was the strongest-ever quarter for Power MOS, with new products showing traction in sales and design wins, respectively. The business unit had a significant win at a large mobile phone customer with an interface chip; and we had design wins for the DisplayPort activity for laptop and desktop PCs. Also, the business expanded the ARM strategic relationship with a major licensing agreement.

The sales and manufacturing operations amounted to $62 million compared to $42 million in the first quarter of 2007. This was mainly caused by sales to the DSP Group in connection with the divestment of the cordless and voice-over-IP terminal operations.

The adjusted EBIT was a loss of $52 million, compared to a loss of $41 million in 2007. We achieved a very strong utilization rate of 87% in the quarter, compared to 84% in the fourth quarter of 2007 and 69% in the first quarter of 2007. Again, a positive development was that cost savings reached a level of $27 million, which is ahead of plan; however, more than offset by transfer prices, negatively impacted by the market price development, and the effect of the weaker dollar.

The sales in corporate and other came in at $21 million compared to $20 million in the first quarter of 2007. The adjusted EBIT was a loss of $40 million compared to a loss of $70 million in the first quarter of 2007. The smaller loss is fully attributable to the [release] of the value adjustment for [intrans] release.

To expand a little bit on the cash position at the end of the first quarter of 2008, cash and cash equivalents amounted to $519 million compared to $1.041 billion at the end of the fourth quarter of 2007. The net cash used for operating activities in the reporting period was $268 million.

Net cash used for investing activities was $198 million, composed of net capital expenditures of $196 million; a purchased interest in a business at $88 million -- that is primarily GloNav; and the proceeds from the sales of businesses at $[60] million.

Our book-to-bill ratio improved to 1.0 in the first quarter. In terms of outlook, we remain concerned by ongoing currency volatility as well as global macroeconomic factors that could impact sales performance. The market remains soft and visibility in the order book remains short.

Given our book-to-bill ratio, we provide an outlook of year-on-year mid single digit sales decrease on a comparable base. This translates into a low single digit sequential sales decrease in the second quarter of 2008 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 once again, as you know, responsible for investor relations within NXP. As usual, I will facilitate this Q&A session, addressing the questions to Frans and Peter. Would you please limit yourself again to really one question, because this will give more people the possibility to ask questions.

Any further questions may be answered after an eventual second Q&A poll by the operator, or may be addressed directly to me after the end of the call. With this, I would like the operator to start the Q&A session.

(OPERATOR INSTRUCTIONS) [David Phipps] from Citi.

Thank you. I would like to talk a little bit about the timing of the two acquisitions that are coming up and how we should look at them when we're modeling them out for either the JV on STM and the Conexant.

Yes, we have announced that the expected close of the joint venture with ST will be in the third quarter, and the closing of the Conexant Set-top Box operations approximately 60 days after signing.

When you're looking at the closing in STM, are you going to keep it as a continuing business so that if you close it on the last day of the third quarter that we would expect to see the mobility numbers continue into the NXP numbers? Or if you close it during the quarter, will you reverse that out? (multiple speakers)

We will take it until the moment that we continue that business. So when as an example we would close the deal at the end of August, then we will consolidate the numbers until the end of August. And as from the first of September, we would then take the numbers out.

Then the income from that will then a flow through the minority interest line, is that --?

That's correct.

I will get in line for the next queue.

Sundar Varadarajan from Deutsche Bank.

Yes, I wanted to focus a little bit on the margin front. Year-over-year your gross margins improved nicely. You made a lot of progress in your cost-savings initiatives. I think you realized more than $100 million of the $375 million. Yet the number that we focus on as bond investors is your EBITDA number, and it is kind of flat on flat revenues, kind of margins maybe even slightly lower.

Could you kind of help us understand how we should look at EBITDA margins going forward and what the remaining cost savings that you expect to realize should translate into in terms of EBITDA margins? Thanks.

Yes, what we have indicated is we will not give any forward-looking information with regards to the EBIT, towards EBITDA numbers. I've given already some color on the improvements of the EBITDA numbers in the first quarter as compared to the first quarter of last year.

So we see, of course, the full impact of currency movements on this moment in our numbers.

Jeff Harlib from Lehman Brothers.

Just with respect to your 2Q guidance, given it is typically a seasonally stronger quarter, can you talk about where you're seeing some weakness, in which businesses, and also if you are seeing some increase in pricing pressures that may impact gross margins?

Sure. Well, we first of all have low visibility. Several of our customers have actually reduced the order cycle. Notably, a customer in the Far East that now has two-week visibility in their order and planning cycle, whereas last year that was still four to six weeks. These measures affect our ability to forecast with, let's say, strong confidence.

I may also point out that several of the handset makers have in the first quarter given guidance that they will reduce their total year outlook. This of course also affects us.

So all in all, we have decided to be prudent in our forecast. We extend that prudence in fact to the whole year with the limited visibility and the lack of bullishness from our customers -- cannot give us the outlook beyond the guidance that we have given.

And on pricing?

Pricing? There, I think, the industry has become a bit more moderate in 2007. Early 2007, we saw strong price erosion. Nowadays, I think we're able -- also, on the back of new product introductions -- to maintain a bit more our value-add. Nevertheless, it is typical of a market where demand is kind of weakish, and there is plenty of suppliers, so there is still some price erosion going on.

Jake Kemeny from Morgan Stanley.

Last quarter you gave us some color about foreign exchange. I think for each $0.01 strengthening from the euro it was like a EUR12 million impact on EBITDA. Can you revise that for this quarter and how much impact it has in terms of dollars?

You know, it's basically when you look to the first quarter, then you can see that $0.01 deviation has an impact of approximately $80 million. On a yearly base, of course.

We all know what happened of course with the dollar. So the dollar came down rather dramatically in the first quarter as compared to the fourth quarter. So the impact that we have in the total numbers is approximately $36 million.

Okay, I'm sorry, the $0.01 strengthening was an $80 million year-over-year?

The $36 million is a year-on-year comparison.

Okay. Then just one quick clarification. Does the STM transaction require approval from STM shareholders?

No, that doesn't require approval of the STM shareholders, as far as we are informed.

What about the Workers Council at STM? Does it require their approval?

The transaction will require consultation with Worker Councils at both companies according to the national laws of the various countries where we are active. And this differs by country.

Do you think there is any risk that the transaction would not close for any reason?

We're confident that we can close the transaction in the third quarter.

Ryder Campbell with Barclays Capital.

Thanks. Two questions. First, could you just give us a little more color around working capital? You cited seasonality; but the magnitude here seems quite a bit greater than quarters in the past.

Then secondarily if you could just tell us what the SSMC EBITDA was for the quarter, that would be great.

Let me give you a little bit more color about the working capital. We managed to increase working capital -- or accounts payable position to around 90 days towards the end of last year. You saw the activity level that we had in the fourth quarter was substantially higher than the activity level that we had in the first quarter. So as a consequence of that, you see a delay in paying our accounts payable, because (inaudible) on the working capital.

The second thing was that as far as sales were concerned, that we saw a strong shift in the quarter. So we had rather high sales towards the end of the quarter, which led to a higher accounts receivable position at the end of the first quarter. So that was leading to the situation of the working capital requirements. We had a number that we have announced.

(multiple speakers) The SSMC EBITDA is $[60] million.

Lee Zeltser from Merrill Lynch.

Yes, a quick question on your CapEx. It looked like it picked up as a percentage of sales in the quarter. I know you had talked about that a little bit. It looks like about 9.4% of sales.

Can you talk about the rationale there and where you would expect that to trend going forward? I think your budget is more like 6% to 8% of sales historically.

Then can you comment on how that might be changed post-STMicro?

The CapEx in the quarter was relatively high due to the fact of being -- was $126 million, so which was more or less in line of what you normally would expect. As a percentage it is relatively high, but as an amount it is a relatively stable amount when you compare (inaudible) quarters. What we have indicated in earlier calls is that we expect that our CapEx will be around 6% to 8% as a percentage of sales.

In the deal with ST, you might know that we will put our [cellular] back-end operation in that process. Hence we expect about -- most of our investments are also in the back-end area, so we expect there will be no big shifts in the 6% to 8% going forward.

Okay, just a clarification if you could. The cash flow statement lists $143 million in CapEx. What was the part that you backed out?

That is the gross amount, so what we (inaudible) --

Oh, you're saying net $126 million? Okay.

Okay, next one, please.

From [Bogdan Kvechiu] from WestLB Mellon.

Could you tell us what are the other items in the cash flow statement of $172 million?

That is basically the gain that we have on the bonds and the cash flow. It is (inaudible) that we have.

Not cash flow.

So it doesn't have a cash impact, but it is basically a correction that we make in the cash flow statement.

It is a correction between?

It is a [dimension] of the currency profits that we basically have on the bonds.

A second question, which is, in the Home segment, what is your market share in digital TV?

The market share at the moment in digital TV is slightly rising. This is also necessary, because you may recall from earlier calls that our market share in analog TV is in the 40% to 50%, whereas in the digital TV it is in the midteens.

So we announced several design wins last year and also again in today's commentary. This will lead to a gradual increase in market share in digital TV, towards what we would deem to be a more justified market share and sustainable for the business going forward. So in short, midteens is where we are currently.

What is that number? Because if I remember it right, it was 15% in the last quarter.

I do not recall having exactly said that, but midteens and 15% is more or less the same thing, so I would go for that.

Okay, let's move on to the next one, then.

David Caldana, JPMorgan.

My question has been answered. Thank you.

[Stewart Gordon], Merrill Lynch.

Good afternoon. I was just wondering if you could talk us through the pricing. I think you mentioned this earlier in the call. Just with the utilization being so high relative to last year and also higher than the fourth quarter; and then if we read that through the revenue line, it seems as if there has been quite a weakening over and above the currency in the first quarter, and that is really causing the costs to stay relatively high.

What is the outlook in Q2, [if] that is the right readthrough for why EBITDA is perhaps a little bit lower than people had been expecting?

The lower results in the operations organization is a function of two things. It is of course on the one hand -- a function of three things I should say.

It is on the one hand the [loading]. The second thing, the currency development we have already mentioned. The third issue is, on the one hand, the lower prices that the manufacturing operation gets from the businesses, [first] the additional efficiency that they have.

What you normally see at the beginning of the year in that the business of the operations provides lower (inaudible) prices towards our businesses. That will be made up later in the year due to efficiencies.

But I mean I was just -- I guess you get 20%, I think it was about 20%, a bit more, higher utilization this year. If you assume that you probably generated $50 million run rate of cost savings against $36 million of currency hit in the first quarter, it does seem to me as if we could have been expecting from that sort of utilization somewhat better results (multiple speakers).

The $36 million that Peter van Bommel earlier announced was on the whole Company level. We didn't say that the $36 million was specifically for the manufacturing. I am looking [through] that we have those numbers readily available here. But clearly the currency basket in manufacturing may have a stronger effect there. So I think you cannot make the calculation as you have just tried to do.

All right. Okay, thank you.

Guy Baron, Credit Suisse.

My question is on the revolver drawing that you talked about. I think you said $450 million. Can you just again run through and clarify the reasons why you need to draw that facility? Is it really a precaution that you're holding the cash? Will you need to actually use it?

Then, should I assume that when you get the proceeds from the STMicro JV that the revolver will then get immediately paid down? Thank you.

We feel very -- what we have indicated earlier, I think we see this as a temporary issue. A Company like NXP sees large seasonal fluctuations in cash flow, and therefore has that revolving credit facility in place to provide liquidity to maintain the normal day-to-day operations. That is the reason why we said we want to draw the amounts of money that we were talking about, to have that comfortable feeling.

When you look to the coming periods, then we will receive at the end of June -- that is the first day basically of our third quarter -- the remaining part of the payments on sales of Crolles, so that is $128 million.

And as Frans already has indicated, we expect that we will receive the $1.550 billion of ST for the wireless business also in the course of the third quarter. So we expect then also that we will repay that $450 million in the moment that money will come in.

Okay, then just to clarify, then, the $450 million is really a preemptive drawing?

It is a preemptive drawing, yes.

Then in the listing that Peter just gave there is two more elements to take into consideration. That is the payment to Conexant that is around 60 days from last week. Then there is hopefully the proceeds from the sale of the Boeblingen equipment that we are currently targeting for the second half of this year.

Okay. Have you quantified that?

Internally, yes, but it is not for sharing in this call.

Okay, thank you.

Robert Hopper, UBS.

I guess it is a follow-up to the liquidity and the revolver draw question. Was there anything that has happened since the end of the quarter that you've seen working capital continued to put pressure on cash flows, that you've been using up the cash flows? Or is this just preemptive given you had the acquisition? I guess maybe (multiple speakers)

I want to be quite clear about this. What we have seen in the first quarter is that the seasonal effect have a considerable effect on the development of the working capital within the quarter. You have seen it of course at the end of the quarter; but we also see it within the quarter. And that the different activity levels make us potentially vulnerable for in the quarter changes in our net cash position.

Given the fact that we still also have some cash in other locations where it is maybe not immediately available for payment, we found that it was prudent to draw upon the revolver, and it should be judged in that manner.

Okay. So at the end of the quarter, do you think that the adjustments that you had in the first quarter should be resolved? It should sort of reverse out in terms of working capital situation?

I'm not sure we understand your question.

As you exit the quarter, in the first quarter you had a big working capital use. Mid-quarter you said -- you are basically saying that you're not sure exactly how those funds are going to grow. But as we work through the rest of the quarter, or sort of at the end of the second quarter, should we expect that working capital -- the use that was in the first quarter should reverse throughout the course of the second quarter?

We don't give any forward-looking statements how the cash flow is developing. But when you look from a historical perspective then you normally see that we are using working capital especially in the first half of the year; and we are building up again working capital. That is basically the function of what I explained earlier, the 90 days [BPO] or accounts payable position, [where] we have 40 days as an average as you can see the DSO position.

So we are building up the working capital again, lowering our working capital requirements -- let me say it in that way -- in the second half of the year.

We also want to bring your recollection that the average manufacturing throughput time is around 75 to 80 days. That means that already today we are manufacturing for the third quarter. So we are making working assumptions on what our customers may need in terms of capacity.

These type of predictions we do to the best of our knowledge together with our customers; but fluctuations may always occur, and therefore we also don't want to be precise on the working capital at the end of this quarter.

Okay. Just one other question. On the currency impact, the $36 million you mentioned, is that net income, revenue, EBITDA? How should we think about that?

Can you also just bridge the fourth-quarter to first-quarter change in revenue to the fourth-quarter to first-quarter change in EBITDA? If you look at that, it was almost a dollar-for-dollar decrease in revenue and EBITDA.

I'm trying to understand, getting back to some of those questions on the cost saves, how the cost saves are showing up in the numbers when the operating leverage on the downside is dollar-for-dollar.

The first question I think that is an easy question to answer. The $36 million is on EBIT level, it's Q1 2008 versus Q1 2007.

I think that the second question that you are raising, maybe we can take that off-line because that is a rather big question that you are raising. And then we can go through the numbers.

Okay, let's move to the next one, then.

Brian Clapp, Prudential.

My question has been answered. Thanks.

Eric Reubel, MTR Securities.

Thanks for taking my question. Frans, a question if I can on inventory expectations in the advanced television and cellular handset end markets. You'll recall that in 2006 there was a sort of an overexuberance around World Cup to provide a catalyst for growth in LCD televisions.

Are you seeing or do you expect any kind of similar or event-driven around Olympics this year? We saw some kind of sizable increases in LCD television inventory at the panel makers. Do you think that that is shaping up -- your expectations for LCD televisions are shaping up well?

Then on cellular handsets, can you give us a sense of how inventories look? We've heard that there is some excess inventory particularly in China.

Yes, while, I would like to recall that the World Cup two years ago was not a good experience for the industry, where the industry generally had built up quite a lot of televisions for the retail pipeline, and then the actual sell-through was quite a disappointment. And as a consequence, we had an inventory overhang.

I think this year the industry is more cautious. At least I am not aware of a massive inventory buildup in the run-up of both soccer and Olympics in the television space.

With regard to -- and maybe by the way that is also assisted by the fact that the panel market is a bit tighter than it was two years ago. But you guys may know more about that, following other industries, of course.

With regard to the handset market I think the story is slightly different. You have all heard the announcements of both Nokia and Sony Ericsson and others that they were ramping down or revising their outlook for the year somewhat. This, of course, has repercussions also in the supply chain. In China that was already clear where there was some inventory buildup.

So I think the handset market was a little bit too optimistic in the back end of '07 and into first quarter of '08, and in the meantime has reduced their expectations somewhat. I expect that that will be worked through in this quarter.

That's great. If I could ask one more question, you mentioned that the cost base kind of suffers from a weak dollar and a strong euro within the operating expense structure. I have heard that cost for back-end assembly and test are priced in dollars, and that for a European semiconductor manufacturing that outsourced assembly and test could actually possibly be a positive on the cost side.

Is that --? Do you see that? What is a sort of your split between in-house back-end assembly and test and the stuff that you outsourced?

Our assembly and test is mostly in Asia. It is for 90%-plus in-house, so we are having our own facilities. As it is in Asia it is more dollar-linked than it is euro-linked, even though some currencies in Asia have also strengthened versus the dollar; this should not be forgotten. The dollar in that sense becomes a little bit esoteric and certainly not convenient.

The euro cost base that we have falls in three buckets. First of all the European front-end manufacturing, the wafer fabs. Secondly, R&D; 80% of our R&D is in Europe. And thirdly, headquarter and business unit G&A cost.

We are having several measures to bring cost to the Far East. For example, we closed down Crolles and Boeblingen, and so that is helping the cost structure. In R&D we have ramped up our facilities in India and in China, and currently have some 10% to 15% of our activities in Asia in terms of R&D.

Finally with regard to business management, that is still largely Europe-based and is also not easy to change. Of course, the core competencies of people is what counts.

Okay, in view of the time I suggest that we move on.

[Peter Higgins], BlueBay Asset Management.

It's actually Mike Boam of BlueBay. I know that you are very insistent about not giving any other guidance apart from revenue guidance. But it is very difficult to estimate exactly how the numbers are going to look. Your gross profit is significantly better this quarter, and yet your EBITDA, as has been mentioned earlier, is hardly better at all. Now I know there is currency impact in that, but that should be more than offset really by cost savings.

I'm still not exactly clear why it is that your items below the gross profit line have led to EBITDA being flat year-on-year.

There are a few reasons for that. First of all, when you look to our G&A expenses we have spent quite some additional amounts of money on this moment for our spinoff of Philips. So we are the last phase there of dealing with some of those expenditures.

The second reason is that our developments that we are still investing in, in our future, you will find that also [back] in our research and development spendings, that we spent $37 million more. Most of those costs are, of course, in the euro environment, while it's translated in dollars. So the impact on that is rather big.

So the increase in G&A isn't really an increase if you like, going forward on a run rate basis. It is purely down to timing issues with respect to expenses that you have realized in the first quarter. Is that correct?

Correct, there are timing and currency.

Okay. Then I know that you're not going to give any more guidance with respect to [TigG]. But is it reasonable to assume that your loading should be similar to the first quarter? Or should we see lesser of a loading if sales decline?

What you have seen is we have given guidance towards the market that we expect the second quarter will be slightly less than the first quarter as far as sales is concerned. We are building up, on the one hand, inventories for what Frans already mentioned, for activities that we expect in the third quarter.

You also have seen that our inventory level at the end of the first quarter was slightly higher than what we have seen in December. So as a consequence of that, our loading is -- if you can calculate the loading consequences as a consequence of that.

Okay, let's move on.

[Elizabeth Fusco], CPN Advisors.

Good afternoon. Can you hear me?

[Nadia Yashayami], Societe Generale.

Could you tell us how much cash was trapped at SSMC, and what you're doing about repatriating that back to the holding company?

The cash is in SSMC at the end of the first quarter is $307 million. We are looking at some alternatives. There are possibilities to recapitalize the company. There are possibilities to pay dividends. So we are exploring there the opportunities (multiple speakers) already in an advanced progress.

Okay, so which quarter should we expect that to happen in?

It is going to be done when it is done. Peter has given the intention and direction, and I would like to leave it at that.

Okay, and $307 million is 100%. Is that right?

Yes.

Okay. Could you also talk about your market share? I guess especially maybe in Identification, and possibly in Auto. Because looking at some of your competitors it seems that their sales increased quite a bit. So I am wondering if you feel like you've lost some market share.

In both markets we have been holding market share. Market share in Identification is -- we are the market leader. It is a market where there is no easy obligation on market share, so there is a little bit of internal estimations. But in some markets we have better than 25%, 30% share.

In Automotive in the segments where we play, like car entertainment and in-car networking, safety and comfort, in most of those segments we're also number one player. So again, market shares that are 20%, 25% order of magnitude.

We don't feel that we have lost market shares in these segments. I would actually like to point out that Automotive has performed pretty nicely in Q1.

Okay, there are a few more people in the queue, so let's move to the next one. We have a few more minutes left.

[William Mansild], Millennium.

Thank you, my question was answered.

[Priya Vitswana] from Citigroup.

Thanks for taking my question. It's a quick one. $5 million of the restructuring you plan to do indicated in Q1 '08; can I verify how much is (inaudible) all of this cash, and how much of P&L restructuring spend and cash restructuring spend will you have to go in 2008? Thank you.

What we have indicated is that we spent far more in the first quarter because we did the closure of Boeblingen. So what we already indicated in the last call is that we expected that the cash out stream of that would count for a big part in the first quarter; and that happened also.

So the cash expenditures that we have is more than $[30] million in the first quarter related to restructurings.

Okay, let's have one final one.

[Chris Miller], Merrill Lynch.

Two quick questions, if you wouldn't mind. Are there any claim-down provisions on the revolver?

Secondly, could you just refresh us on what the financial maintenance covenants are, please? Thank you.

No claim-down constraints there, and no financial covenants. Sorry, the maintenance covenants?

Yes, well, financial maintenance covenants, yes.

That is correct, no maintenance covenants.

There are no financial maintenance covenants.

Thank you. That's great.

Okay, operator, I think that is it, then.

I appreciate everybody's attendance. Thank you very much, and I hope that you will again join for the next quarter call in July.

Thank you. This concludes the NXP Semiconductors first-quarter 2008 results investors and analysts conference call on Tuesday, May 6, 2008. For any further questions you may contact NXP's Investor Relations department. Please visit their website, www.nxp.com/investor. Thank you for your participation. You may now disconnect.