恩智浦 (NXPI) 2009 Q2 法說會逐字稿

Welcome to the NXP Semiconductors second-quarter 2009 results investors and analysts conference call on Friday, July 24, 2009. During the introduction by Mr. Rick Clemmer, CEO, and Karl-Henrik Sundstrom, CFO of NXP, all participants will be in a listen-only mode. After the introduction, there will be an opportunity to ask questions. (Operator Instructions). Please note that this call will be recorded. I will now hand the conference over to Mr. Rick Clemmer. Please go ahead, sir.

Thank you very much. Ladies and gentlemen, welcome to NXP's second-quarter 2009 results. I hope you have all seen a copy of the results, press release, and the presentation on our website.

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

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

I will begin today with a few comments on the market conditions that we faced in the second quarter before discussing some of the characteristics of our performance in the quarter. I will follow that with a summary of the progress we've made with the redesign program, as well as the progress in the capital restructuring. Finally, I will give you a bit more color on the future direction of the Company before handing over to Karla, who will provide you with more detailed information on our financial performance and on each of the individual business units.

Let me start with our performance and the market environment in the second quarter. Our performance in the second quarter was encouraging. After a very difficult first quarter, we have benefited from supply chain replenishment, following a soft first quarter of 2009, and the continued impact of various -- primarily Chinese -- stimulus packages.

These factors provide the explanation for the comparable quarter-on-quarter sales increase of 26.2%.

However, taking into account the divestment of the wireless business, sales are still significantly down on the same period last year across -- in almost all of our business units. In total, it was down some 30%.

This year-on-year comparison is certainly a reflection of the global recession that continues to hamper our performance. Besides the demand increase in China and in some other Asian countries, we see few signs of sustained economic growth or any fundamental recovery in the semiconductor industry, and visibility beyond the third quarter remains limited.

The NXP redesign program continued in the second quarter and significant progress has been made. The wafer fab in Cannes, in France, was sold during the second quarter in 2009, while the wafer fab in Fishkill in the United States stopped production in early July 2009. The processes and product transfer programs related to the redesign of the fabs in Hamburg and Nijmegen are on track.

As I mentioned before, the overall program is forecasted to have restructuring costs of no greater than $700 million and is expected to achieve higher annual savings by 2010 than the $550 million originally planned.

Finally, as you know, we have felt it important to improve our capital structure in light of the current economic environment. We began this process in the March April when we succeeded in reducing our debt by over $0.5 billion. We have subsequently reduced our debt by nearly $750 million and the related interest expense by approximately $50 million. This includes the results of a private notes buyback and issuance of new super priority notes that we announced earlier this week.

So far this year, our overall debt has been reduced by over $1.2 billion and cash interest payments are down around $80 million on an annual basis. These were necessary steps and an absolute priority for NXP and I'm very pleased with the results.

As I mentioned previously during the first quarter, the management team and I have spent a great deal of time through a deep dive process with each individual product line with complete discussions about customers, market potential, market opportunities, competition, technologies, key product status, and key requirements -- how to win in the businesses with customer-focused solutions we choose to participate in.

We have one of the broadest product portfolios in the industry. As a result of these deep dives, we indicated we would define a clear focus going forward for NXP to give us the greatest opportunity to win in the marketplace.

After this global review, including feedback from our customers, we believe, that in view of NXP's core competencies, customer relationships, and key technology strengths, the focus should be on customer-focused leadership in high-performance mixed signal, supported by a strong standard products business, such as sound solutions and standard discretes.

I should firstly explain what we mean by high-performance mixed signal. Our customers' products are usually not partitioned neatly into analog and digital sections. Designers want to be able to mix and combine analog and digital circuitry to optimize their architecture and to achieve the greatest precision, highest bandwidth, or lowest power consumption.

NXP has the process technology, circuit design expertise, and architectural insight to address this need. Some examples where we have been very successful with mixed signal solutions are our RF products, interface devices, and automotive subsystems. We have also been successful in developing mixed-signal application-specific standard products for many customers.

Overall, two-thirds of NXP revenue already comes from products with some mixed-signal technology.

We haven't chosen this area purely because of our existing strength in it. These mixed-signal businesses have shown healthy growth over the past years at attractive margins. In addition, very few companies are viable competitors because of the design competencies required to make these products are scarce.

As we move forward, we intend to focus investment on driving growth around our leading positions in our high-performance mixed-signal markets. We plan to increase our focus and commitment to become the customer-focused leader in high-performance mixed-signal solutions.

More specifically, our strategy is to prioritize investment in radio frequency front-end product -- identification products, interface products, and auto analog mixed-signal products, and selectively invest in high-growth areas such as lighting, and possibly even in solar and sensors. We will keep current levels of investments in discretes, general-purpose logic, microcontrollers, sound solutions, and can tuners.

We also drive M&A where consolidation is required to build leadership. For our digital TV and set-top box business, we plan to create a capital structure that will give the business the best opportunity to win in the marketplace.

I should be clear that, while we intend to win in these markets, our priorities on our investments going forward will be high-performance mixed signal. Our existing strength in this area, coupled with an attractive market opportunity, makes high-performance mixed signal the right place for us to be focusing on.

It is around that area we intend to build a winning culture within NXP, a culture that is characterized by customer-focused leadership, a total quality mindset, action-driven accountability, and ownership. It is all about customer-focused passion to win.

I look forward to updating you on this direction in the quarters to come. I would now like to hand over to Karla to take you some of the operational highlights and the financial details of our performance in the second quarter.

Thank you, Rick. I will give an overview of the financial performance for the quarter. Please note all figures are quoted in U.S. dollars and exclude the divested wireless business.

We reported sales for the second quarter of $857 million, which represent a 26.2% increase from first quarter, largely due to supply chain replenishment and partly compensated for the weak sales in the first quarter and the demand increase in China.

This number excludes $46 million in wafer sales to ST Ericsson. It was, however, 29% lower than the second quarter of 2008 on a comparable basis as a result of the continued, very challenging market conditions within the semiconductor industry.

Gross margin as a percentage of sales improved considerably from 16.8% in Q1 to 32.3% in this quarter, excluding wafer sales to ST Ericsson. This is a result of the redesign program and effective utilization of our fabs.

The effect of the redesigns are resulting in significantly lower operating expenses. Excluding the divested wireless business, OpEx has been reduced by $98 million compared to the same period last year.

Second-quarter adjusted EBITDA, excluding the effects of PPA and incidental items, came in at a profit of $89 million, down from $114 million profit in the second quarter of 2008. But an important improvement, compared to a loss of $71 million in the first quarter of this year.

Adjusted EBITA for the quarter was a loss of $18 million, compared to a loss of $29 million in the second quarter of 2008 and a loss of $188 million in the first quarter of 2009.

Net income for the quarter was a profit of $344 million, compared to a loss of $390 million in the second quarter of 2008. The increase is largely explained by the higher financial income as a result of the bond exchange and the lower cost base.

Operational cash flow for the second quarter was negative by $349 million, which was largely due to the half-year interest payments of $168 million and a cash-out of $96 million related to the redesign program. Cash at the end of the second quarter stood at $1.373 billion, including the cash position and the unused portion of the revolving credit facility. NXP had access to liquidity resources of $1.467 billion at the end of the quarter.

As Rick touched on earlier, we have taken decisive action to reduce our overall debt level and related interest payments. In the year to date, this has led to a debt reduction of over $1.2 billion and cash interest payments reduced by approximately $79 million on an annual basis.

A total amount of $244 million in cash will be spent in Q3 to achieve this.

And finally, our book-to-bill ratio was 1.2 compared -- in the second quarter of 2009, compared to 1.18 in the previous quarter.

Let me now turn to the performance of the individual business units. All figures I quote exclude the effects of the purchase price accounting, any incidental items. They are provided on a comparable basis, unless stated otherwise.

Furthermore, in the first quarter we introduced a new method of cost allocations of operations in corporate and others to the individual business in order to come to fully loaded or allocated P&Ls the level of EBIT of the business units. The allocated costs include, among others, costs related to corporate activities that are for the benefit of the business unit and the capacity cost of the manufacturing operation. The segment information for prior periods has been reinstated to reflect this reallocation.

Automotive and identification sales came in at $200 million, compared to $179 million in the first quarter, a comparable increase of 10.1%, and $359 million in the second quarter of 2008. The sequential improvement is mainly attributable to supply chain replenishment and stimulus packages for the auto industry.

However, the weak performance year on year reflects the impact of the global recession on the auto industry and the slowdown in government projects within the identification business.

Adjusted EBIT amounted to a loss of $17 million, compared to a profit of $4 million to $7 million in the second quarter of 2008. Adjusted EBIT on a sequential basis showed an improvement from a loss of $44 million in the first quarter of 2009, which was mainly attributed to the higher sales volumes together with reduced cost base.

In automotive, I can report that we shipped over 1 million flex rate transceivers as the market leader for the next generation in vehicle networks. We also successfully launched a field test for intelligent traffic management with IBM in the Netherlands based on NXP's ATOP platform.

Furthermore, we had a significant -- a very significant design win at the major car OEM immobilizer and keyless entry/go platform for models in 2012.

I'm also pleased to report that recent data from strategy analysts -- analytics also show that in 2008, we won market share in this sector for the fourth year in a row.

In identification, we received trusted security stamp of approval from the German Federal Office of Information Security. We also had a design win for the Los Angeles metro infrastructure for automatic fare collection. In Egypt, a smart MX win for family card, and a MIFARE DESFire first-evolution design win for a theme park in Southeast Asia.

Furthermore, we have developed the world's first industry-standard chip, enabling new era of contactless mobile service innovation, taking [near feed] communications to the next level.

MultiMarket sales amounted to $418 million, compared to $315 million in the first quarter, a comparable increase of 31.4%, and $566 million in the corresponding period of 2008. The sequential improvement is attributable to particularly strong sales in China and partly attributable to replenishment of supply chain.

Adjusted EBIT came in at a profit of $33 million, compared to a loss of $60 million in the first quarter and a profit of $46 million in the second quarter of 2008. The sequential improvement in adjusted EBIT was mainly due to higher sales volume, increased utilization of the fabs, and lower cost base.

MultiMarket semiconductors have taken the first step to convert to Hamburg wafer production for integrated discrete from six inch to eight inch. We also claimed first-to-market leadership with high-speed data converters, compliance to new JEDEC interface standards, and had a number of design wins, including one with MicroPact devices, diodes, and integrated discrete at two leading smartphone manufacturers.

In-home sales amounted to $181 million, compared to $135 million in the first quarter of this year and compared to $196 million in the second quarter of 2008. This sequential increase of 33.7% on a comparable basis was mainly driven by sales recovery in DTV of the inventory corrections in the first quarter of 2009.

Adjusted EBIT was a loss of $41 million, compared to a loss of $79 million in Q1 and a loss of $37 million in the corresponding period last year. The sequential improvement was mainly due to higher sales and lower cost base.

Our new DTV platform, the TV 550, now has two lead customers engaged for the 2010 model range, with first mass production anticipated at the end of 2009, early 2010. We also achieved significant recent design wins with key OEMs in set-top box for Europe in terrestrial satellite applications for major operators and had a design win in silicon tuners with several set-top box manufacturers.

Basic manufacturing operations, excluding wafer sales to ST Ericsson, amounted to $45 million, compared to $32 million in the first quarter and $61 million in the second quarter of 2008. Improvement in sequential sales was a result of an uptick in demand in the second quarter.

Adjusted EBIT was a profit of $5 million, compared to a loss of $9 million in the first quarter and a profit of $1 million in the same period last year. Incidental items for the second quarter was a loss of $25 million, mainly related to the sale of the fab in Cannes and the closure of the fab in Fishkill. The utilization of manufacturing base improved to 53% in the second quarter versus 36% in the first quarter of 2009 and 78% in Q2 of last year.

Sales in corporate and other were $30 million, relating to IP licensing and sales from NXP software, compared to $12 million in the first quarter of 2009 and $18 million in the same period of last year. Adjusted EBIT was a loss of $4 million, compared to a loss of $5 million in the first quarter and a profit of $3 million in the second quarter of 2008.

Finally, moving on to the outlook, the weak macroeconomic conditions are still continuing, although we have recently experienced positive order book development. We believe that it's may be driven mainly by supply-chain replenishment and not by fundamental improvement of the semiconductor market, apart from China, where we have seen real demand increase, and recent improvement in other Asian countries.

Considering the current business development, we expect a sequential sales increase between 10% and 20% in the third quarter on a business and currency comparative basis, excluding wafer sales to ST Ericsson.

However, visibility beyond the third quarter is still limited. We currently believe that we could see a slight sales decline in the fourth quarter. Thank you and we would like now to open up to your questions. Jan Maarten, can you take over?

Thanks, Karla. As usual, I will facilitate this Q&A session again, addressing the questions to Rick and Karla. And as usual, would you please limit yourselves to really one question, as this will give more people a possibility to ask questions? And as you know, any further questions may be answered after the eventual second Q&A pulled by the operator, or may be addressed directly to me after the end of this call. With that, I would like to ask the operator to start the Q&A session.

(Operator Instructions). Michael Boam, BlueBay Asset Management.

Hi, yes, it's Mike Boam with BlueBay Asset Management. I'd like to talk a little bit about the restructuring, if possible. I believe in the first quarter you spent $140 million and, I believe, the spend in the second quarter is $96 million, according to the release. So that's $236 million so far this year.

Can we talk about the phasing of the residual expenditure this year? I believe you said you will spend $500 million in total this year.

And also, can you talk to where you think you are in terms of actual savings at the moment? Both on a run rate basis and also what's actually been realized in terms of the numbers.

First of all, Michael -- this is Karla speaking here. We are given a facing at the 12th of September last year, which was 600 in 2009 and 200 in 2010. We later reduced the total amount to $700 million and we basically said you could expect the same timing. Okay?

We have spent around $236 million. That's correct. But we spent $48 million in Q4, $92 million in Q1, and $96 million in this quarter. Timing here is a little bit hard to say, so for me, I would say we still say the total amount now is $700 million and I would say we will use the same timing for the period to come, because sometimes in Europe it takes sometimes before you actually cash it out because it has to do when people actually leave the company legally.

So, sorry, did you say you spent $92 million in the first quarter, not $140 million?

No. Because you put together the $48 million in Q4 with the $92 million.

Okay. And where do you think you are in terms of costs that have come out thus far?

I would say the following. We are -- this is a little bit -- because then you have to have some sort of assumption on the prices. Because, as you can see, it's obviously coming out quite a bit under the gross margin. Like almost doubling the gross margin between two quarters.

So I would say we have -- we are according to the plan when it comes to gross margin, maybe a little bit ahead of the plan because some of the closures were coming in faster. And on OpEx, as you can see, we had 63 in savings in the first quarter. We are now up to 98, but you also have to remember that OpEx during last year was increasing quarter by quarter. So I would say we are on track to get to the total savings of 250. So that's my answer.

Let's move to the next question.

Jeff Harlib, Barclays Capital.

Just -- on the restructuring again, for the -- where do you stand on the $300 million or so, or $300-plus million of manufacturing savings in terms of what was realized by Q2. And I'm interested in the phasing of the actions with the Hamburg fab, the closing there, and the 5-inch Netherlands fab closing and the transfer to the 8-inch, the timing of that.

So the $300 million after the total savings of $250 million was supposed to be run rate wise by the end of 2010. That was what we stated in September. I would say that we are a little bit ahead.

But let me be very fair. It's very hard to say exactly how much. We know how much cost has left. But -- more or less, that we know. But what that does to the gross margin is also a function of the price that you expect.

Right, right, but -- the $300 million of savings, though. I'm trying to get a feel. You just reported a very high gross margin. It looks like a 90% fallthrough from revenues to gross profit, and I know your gross margins can move around based on mix and utilization, but I'm just trying to get a feel as to -- you know, for the $300 million. Were you at $100 million over the $300 million, or less, or more.

About $100 million.

You know, we still have the savings, for example, from Fishkill that will come in as that facility was shut down earlier this month, so we'll get the ongoing run rate associated with that, and even the sale of the Cannes facility in France, which took place in early June, we'll get the full quarterly savings of that beginning in Q3.

So we have some programs that will clearly add to the cost savings as we move forward.

[Orlean Schschedri], Credit Suisse.

First off, I just wanted to get your sense for capital expenditure for the rest of 2009 and, at this point, your early sort of assessment for 2010. And I also wanted to get a sense for timing of the cash taxes remainder from the STM proceeds.

So, the -- the timing of the taxes from the proceeds, I think we said.

Between $80 million and $85 million. It's in the second, third, and fourth quarter.

Yes. And the first question was --?

CapEx.

CapEx. We came in at a very low CapEx, which was seven, and that has to do with timing, and we were at over 30 -- no, we were at 40 in Q1. And at Q1, I said that that was a run rate that was in line with what we expected.

And most of our CapEx right now is depending on demand, because it's basically in assembly and testing, because we have very little investment in the front end. It's basically all backend. So given what you think about the volumes going forward, that will give you the indications of the CapEx you need going forward.

We don't really know what the sales is going to be in 2010. However, we believe that we will come back to growth somewhere in 2010.

(multiple speakers) The next run rate will be up significantly from the rate that we have for the first half of the year.

Okay, understood. The follow-up was on -- on DTV, you've obviously talked about, this morning, I guess, about potentially a partnership there. Could you talk about how much of the home segment is DTV and the adjusted the EBIT breakup of DTV as compared to the entire home segment, and any other further color you can give us on the type of partnership there?

I guess the first thing that I would say is that it's still under development. So we can't give you any details since it's being worked.

Our intent is that for the -- for our consumer SOCs, focused on digital TV, the 45 nm new parts as well as our set-top box space, we are trying to work a relationship where we can create a different capital structure that will give that business the best opportunity to go win in the marketplace as well. What that actually is is still to be determined as we are still evaluating those alternatives.

But what we're trying to do is be sure that we find a partner that brings additional technology so that we can bring a more comprehensive technical solution to our customer base, as well as a strong cash position to be able to afford the significant R&D investments that are required in that business to drive the fundamental growth associated with it.

Our intent is is we will still be a significant participant associated with that. We will still have significant influence and we will maintain that ownership to be able to participate in the upside value creation, which we believe is there to be had.

Can you talk about what is the amount of DTV within home?

You know, it's a significant chunk of the home business. I can't give you the details but it's a significant chunk of that, and even more so because it's where all the R&D investment is going. It represents the bulk of the investment or the losses in that business.

Sundar Varadarajan, Deutsche Bank.

In terms of your guidance for the next quarter, clearly pretty strong related to some of your peers. Could you talk about, by end market, where you're seeing the strength come from, and Karl, you also talked about Q4 at this point, you think, being sequentially down. What kind of visibility do you have? Is this just a conservative view given the strength you've seen in the second and third quarters or are you really able to predict at this point that 3Q -- I mean, 4Q would be down based on what you're seeing in terms of order patterns.

So I think the first thing is visibility beyond the third quarter is just very limited, you know, and it could change, clearly.

But based on what we see today, we see that there is not really any sustained fundamental economic improvement that would continue to support the business that clearly has been driven primarily by supply chain replenishment in Q2 and, we believe, a significant part of the Q3. So we think there could be a slight decline in Q4, based on that expectation, but our visibility is extremely limited.

Relative to Q3, we see an opportunity for 10% to 20% growth. We think that that has to do with the product portfolio and where we are engaged with customers. Clearly, the strength in China that we'd seen from the economic stimulus packages in China, focused specifically on the telecommunications infrastructure, has been significant, a significant contributor in our revenue growth. But frankly, all of our customers in China, whether they be in the consumer space, wireless space, or telecom infrastructure, expect to see revenues or sales in 2009 that's higher than 2008. So a very positive environment.

And we are actually beginning to see some of the other countries in Asia begin to see an improvement as well. But we still see very flat true demand increase -- or not increase, very flat true demand in North America and European countries. So we don't see any fundamental growth in those markets and don't see anything that's going to drive that economic recovery from a true demand basis until very late this year or early 2010.

You talked about supply chain inventory replenishment kind of driving some of the strength. Could you comment on where you see the inventories being in the supply chain at this point? Is there more legs to this replenishment? Any comments there would be helpful as well.

I think that the 10% to 20% growth that we see in Q3 says that we are still seeing some supply chain replenishment through Q3. So we don't think that it's finished, based on Q2 as factories, as they get back to more of a normalized run rate or actually ensuring that they have parts in-house, and frankly, we are beginning to see some early signs of shortages in specific spot instances on some product segments.

But, you know, I don't think that we would anticipate that the supply chain replenishment would continue much beyond kind of the Q3 timeframe, and that's the reason why. Because of limited visibility, we would anticipate that there could be a slight decline in Q4.

And finally, on the utilization front, with Fishkill not being in operation in Q3, what -- where do you expect factory loading to go with that capacity kind of coming off -- off-line? Based on your guidance, how much more improvements can we see in capacity utilization?

You know, clearly the 10% to 20% overall sales increase will have an impact on that and the shutdown of the Fishkill factory will have an impact on that. But we can't comment on the specific numbers.

David Smith, Citigroup.

Thank you, and congratulations on a solid quarter. I'm looking at some of the sell segments that you have, and it looks like to me that China plus Asia is about 45%, 46% of your sales. And so, when you just talk about the strength in Asia, are you saying that about half of your sales are experiencing strength? Is that where some of the big bump up in sales is coming from?

This is Karla speaking. You're taking -- .

I'm taking your geographic breakdown in sales.

And that geographic breakdown is, if you read the note, is actually by invoicing and the comparison is also including -- is not restated for taking out the wireless. So I think that one is not given. But as Rick says, it is in China we are seeing growth and some signs in other Asian countries.

Yes, I guess the only thing that is probably worth saying is is we have seen some improvement in automotive demand from the ultralow levels that it got down to late last year and early this year, with the Cash for Clunker programs where governments have put stimulus programs in place, as well as just, frankly, the supply chain replenishment in the automotive factories.

But the virtual significant factor of true demand increase through Q2 has been in China, and we believe that it's beginning to roll out into other countries in Asia for Q3. But all of the rest of the increase in sales comes from supply chain replenishment.

Fair enough. And just as a follow-up, if you hit the top end of your guidance of the 20% sequential sales growth, is it possible for any of your divisions to show year-over-year sales growth in the third quarter?

It's possible.

Okay, that's great. Congratulations.

Jean-Yves Guibert, BNP Paribas.

I've got two questions, if I may. First one on your working capital dynamics over the quarter. And especially if you can provide us with a bit more granularity in terms of actually decrease in accounts payable accrued and other liabilities of minus $166 million. Considering that on a reported balance sheet basis, your accounts are not payable and increased actually by $55 million in -- during the quarter, so if you can provide us with a bit more granularity.

My second question referred to your cash position on a reported basis on a consolidated basis of $1.37 billion plus a fraction of maybe $100 million undrawn on your CF. Could you provide us, when you give some granularity on page 27 of your report on the cash position, on the $241 million located on guarantors, $79 million on non-guarantors and $160 million on non-guarantors unrestricted subsidiaries, what the amount among the three different types of [classification], could you -- if that's a [seeable], actually, at the DB level?

So the first one, were you asking why accounts payables are increasing?

I'm asking if you can provide us more granularity in terms of the minus $166 million, which means that your liabilities have decreased by $166 million -- while on the balance sheet, it has increased during the quarter.

I mean, on the balance sheet, it refers only to accounts payable and [nots], which have increased by $55 million in Q2 from 428 at March 2009 to 483 at June 2009. On your cash flow statement, you refer to a decrease of $166 million in accounts payable, which looks to be a positive year, actually. It means that this is more than offset by a decrease in acccrued and other liabilities, so potentially for more than $200 million cash outflow, and I would like to know if it is possible to get more.

So the accrued liabilities, the reason why they are decreasing with that amount, the major part here is that we actually paid a semiannual interest payment on the bonds.

Okay, so it is including that. Okay.

Yes. But the other -- the first question about payables, because we had 428 in Q1. We are now having 483. That's an increase by 13%.

And the reason for that is that, well, since around -- that's a number that I feel very comfortable with and that is increasing because -- since we actually increased normally 27% in sales in the quarter, and roughly around 60% of our costs are fixed and 40%, and then some other supplies which, when volume goes up, increases, so that is my explanation on that one.

So then, the other question, is that about the cash?

Correct.

And what we have given on page 14, we are telling you that 156 of that cash in the nonrestricted stocks is actually sitting in [FSMC]. Was that your question?

SO the rest is fully accessible?

Yes.

At the DB level?

Yes.

And if (multiple speakers) I may just re-ask you, I think it has been provided during previous conference calls. What's the minimum of cash you must have in hands for day-to-day operations? Roughly speaking?

Somewhere between $200 million and $300 million is what we need to run the operations on. Did I answer all your questions now?

Yes, that's all. Many thanks.

David Caldana, JPMorgan.

I already realize you've already done a significant amount with respect to the capital structure and reducing debt, but what interest burden, in dollar terms, would you be comfortable with on a sustainable basis going forward?

That is a very good question because, then, you have to probably look on a full semi cycle. I think we are in probably the most depressed semi cycle in a lifetime.

So obviously, the interest level we are having right now is a big burden, but if we get back to industry norms, I think we have no issues on carrying the interest burden that we're having right now.

So in terms of your motivation to do further transactions to reduce the burden, is that something that you're just going to wait and see, depending on the demand environment, or will you continue to try and push away at that?

We will continue to be opportunistic as opportunities present themselves on a reasonable basis. But it's not about the concern over the cost of the interest payments. It's just more of the opportunity to take advantage of the market dynamics to be able to improve the overall balance sheet. We're not concerned about the level of the interest costs at all.

And we are also stating in the report that we might be, from time to time, in the market and doing bond buybacks or exchanges or whatever to reduce our interest and debt.

Understood. And if I could just ask, are there other possibilities on the divestitures side of things? Is there anything that's being discussed at the current time that could also help in terms of bringing more cash?

No.

[Bob Van Covature], [WestLB Melbourne].

I have a couple of small questions. The first one is what is your market share in digital TV?

I don't know that I know that number offhand. But I would think that it's probably something in the 10% to 15% range today where we have two significant customers. Two of the major six or seven suppliers, major suppliers, in the marketplace with a share of their participation.

But clearly with the 550, the 45 nm part that we're actually out engaged with, all major TP manufacturers on, with a lot of significant activity, we have opportunity for significant increase in the market share in DTV.

And what is your factory utilization rate in the month of July?

That we will not disclose.

I understand. How long can you go with such a low CapEx, comparing with your D&A?

So what we said before was that we had an exceptionally low CapEx of seven in this quarter. We had 44 in the first quarter and in the first quarter, I answered a question that that was a level that we feel comfortable with.

But a lot of our CapEx is driven by demand, end-user demand, because it's basically all related to backend, which is assembly and testing. So given the demand, that will increase over time.

And one other reason why we have a very low, in this quarter, CapEx is because we have been able to reutilize equipment coming out of some of the factory restructuring we've been doing, and also we had some timing issues. So it will, as Rick said, increase for the rest of the year.

You know, our customer requirements, as I talked about, clearly are going to drive an increased investment from the level that we talked about in Q2. So, you will definitely see that increase as we go into Q3 and Q4.

So it should be around 160 for this year and after that, an increase in 2010, 2011?

You know, we haven't talked about the specifics but the run rate for the first half of the year, we would expect to be some increase from that, but it won't be a massive step up, unless we continue to see increased customer requirements that will drive that, which will obviously be very significant relative to the revenue.

And then, we wouldn't expect to see a significant increase in 2010. Our model that we are trying to work with to ensure that we have world-class cost competitiveness in the areas where we are going to participate gives us the ability to do that with most of the investments we have in place.

Operator, can we move (multiple speakers)

One question I've got regarding the working capital inflow. Do you expect an inflow for the next quarter?

What do you mean by inflow, so I understand that?

I thought you had an outflow of 221 this quarter, last quarter 170. And last year, in the third quarter, you had around $500 million. Do you expect an inflow in the same level or flat one on all the outflow?

May I answer the question so we all are on the same page here because I -- so if you take the 349 that we had as a net cash provided or used by the operating activities, you should deduct out of that 96 for the cash payments of the redesign. And then you should deduct $168 million of the semiannual interest payments. That gives you a minus $85 million in that quarter.

If you do this same calculation on the cash flow, on the $368 million for Q1, you take out the $92 million in redesign cash out and the $57 million in cash interest payments, that's $290 million. That means that the cash flow has improved $134 million, excluding new two items in the quarter.

We built some inventories but that is because of the expected higher demands, and we increased, as we talked about with the previous question, about 12%, 13% on the payables because that was happening when you have payment days around 70 days to 80 days on your suppliers. And you collect basically around 45 days.

And I think that gives you a better feeling for our working capital and model. Did that answer -- it didn't answer your question fully, but I think it gives you a better understanding how the model is working.

Okay. As we have some more people in the queue, I suggest, Operator, that we move to the next one.

[William Mansfield], [Jandoe Capital].

I'm sorry. All of my questions have been asked.

That's a short one, then. Then next one, please.

[Vlad Steinberg], [Realm Partners].

Hi. With Realm Partners. Thank you. First question is just in terms of your refocusing of businesses. Are there lines that you're actually exiting and what is the -- is there a potential positive mix result and what's the timing on that?

Our high-performance mixed-signal business is -- will be the lens or the focus with which we do stepped-up investments associated with that. We are going through our strategic plans now. This is really just introducing the strategy as we are laying it out. And we will be going through this strategic planning process over the upcoming months.

So we would anticipate having that complete around the end of the year, so that we're in a position to have a very solid plan to do that.

But if you look at the high-performance mixed-signal businesses and the characteristics associated with those, those are clearly more stable from a volatility basis and at significantly higher gross margins.

Now, what we'd said is is a focus on high-performance mixed-signal as far as stepped-up investment, but with the strong support of the Standard Products area, so long as they continue to contribute very significant bottom-line profitability. So, the fundamental characteristics of the high-performance mixed-signal business are higher gross margins and a more stable environment without the inherent volatility associated with it.

But -- and you know it will take us a while to continue to make those improvements. But we're very optimistic about the benefits that that will yield relative to our overall financial performance.

Okay, and then, a couple of small questions, [tactel] questions. First of all, in terms of your split on auto, what percentage of your auto and ID segment is auto?

It's about 60% auto, percentage, and 40% ID.

And then, last one is just what is your exposure to the China end demand versus the invoices?

Can you repeat that one? You are cutting up.

Yes, sorry. What's the exposure to the Chinese end demands as opposed to the invoices, which you stated before that, yes, that 45% China plus Asia is invoicing but that's not necessarily end demand. What's the end demand percentage of sales in China?

Are you asking about what is invoiced to China or by (multiple speakers)

No, what's consumed.

What actually ends up, what products end up in the Chinese infrastructure improvement projects? What percentage of your sales does that represent?

Oh, okay, not now. So, relative to the percentage of our sales that are associated with the infrastructure, clearly the base stationss that we have where two of the largest Chinese customers we have significantly increased our run rate associated with the RF products that we provide associated with the base stations, but also, when you look at the overall stimulus packages in China, it's pretty broad-based in the consumer spaces as well, with the VAT tax basically redemption or elimination that they've been providing.

So those stimulus packages in China are actually broad-based across all of our product areas, virtually, and creating significant improvements in our overall sales activity.

Right, but my question is when I look at the -- at China sales, which represent roughly 17% of your sales in 2008, do all of those sales end up in China or is that just -- are some of those are manufactured in China and then redirected elsewhere?

Well, so for example, for example, one of those customers for base stations might very well take those and they may sell some of those base stations outside of China. But we don't have any way of tracking the specifics associated with that. This is really about where the consumption is from a semiconductor viewpoint.

And some of those components might also be shipped to European address and they'll end up in China. So it's a little bit hard for us to have that granularity. Where the components and up in the end.

Virtually impossible.

[Aaron Huffert], [Lenexa Global].

Can you talk about whether you've seen any change in your lead times over the past few months and what you are expecting going forward, and then, where you think inventory levels are at your distributors right now?

Inventory levels at our distributors continue to be at reasonable levels. So, we don't see any real change there associated with that. They have been, overall, outside of the Asian distributors, have been relatively conservative through this cycle in controlling their inventory levels.

So we don't see any real increase there, and I'm sorry, I forgot what the first part of your question was.

Just on your lead times. Has there been any change to your lead times?

Yes. So, you know, our general lead times, I would say, have not changed dramatically, but we have some individual products where we have seen our lead times move out. Or actually had to go into quasi-allocation for some limited segments associated with it.

But that hasn't really changed our fundamental leadtimes. It's just that we have limited availability that we are making available to customers on those specific segment products.

And then, when you said distributors outside of Asia have been pretty conservative with inventory, have you actually seen your distributors within Asia build inventory off of the lows of this cycle, or are they still going to be flat at low inventory levels?

I think some of the distributors in China or in Asia have actually increased their inventories a little bit based on their fundamental improvements in demand. Most of them, as they were in the end of last year, felt like that they were going to fall into the same category and were expecting a decline in revenue in 2009 versus 2008, where now, virtually across the board, they all believe that their sales in 2009 will be greater than 2008. So they have definitely put some more product into inventory in support of that overall demand expectation.

Adam Feldheim, Morgan Stanley.

Most of my questions have been answered. One final is around language from the note exchange documentation, specifically as it relates to the maximum exchange amounts. It seems to define the €250 million basket available under your revolver document as this maximum exchange amount and it notes that you reserve the right to increase the maximum exchange amount. So my question is, are you able to increase this basket above €250 million?

No.

Okay, so can you just explain how I should interpret that language?

Let me make one comment. There's a total basket of €750 million that is available. We have used €500 million for the revolver. So if you would leave the revolver at the same level of 550 million, then the limit is 250 million. The total basket that we have available at super priority level is €750 million.

Okay, so then what specifically does that allow you to increase? Was it just the ratio on the exchange?

Still room in the 250.

There is still room in the 250. So put it -- we have the revolver, which is 500, and then, part of that in other basket of 250.

And so, just to complete the 250 but not anything above this?

No, we cannot go over the 750 and we have the 500 in revolver.

We have two final follow-up questions, and the first ones come from Jean-Yves Guibert, BNP Paribas.

As a quick follow-up on the previous question, I mean that for the amount still undrawn on your RCF, you cannot use this under the amount of roughly $100 million to push the available amount of new super priority notes up to $116 million. We can't use any underdrawn amount on the RCF to issue through new super priority notes. You have only $60 million remaining, relatively speaking. Is that correct?

If we reallocate from the revolver, yes, we can. But we have the revolver at 500.

Yes, but it's not fully drawn. You have only 400 million -- I mean, you have only 600 million equivalent drawn on the revolver, and based on the current exchange rate, it's -- you have $200 million available undrawn on the revolver, so my question is could you use this headroom to issue also super priority notes? So to keep the overall amount of super secure debt at 750 million.

That's right. The total basket is 750.

And then, therefore, you (multiple speakers) can move between whether it's our share of super priority notes.

It's yes, if we want to take away from the revolving -- the total limits on the revolving credit facility, and then the answer is yes.

So, as of today theoretically [clear], is purely only a theoretical question, you could issue still approximately 160 million of new super priority notes under this new indenture.

Given what you'd put on the -- what exchange rate you'd give on the -- on the Euro.

Okay, great. Then a quick very quick follow-up, coming back actually on your first question from Michael, on the -- you say that it was the same facing in term of your cash restructuring costs as per the previous 600 million and 200 million. Now it's $700 million.

Should I understand that it's going to be still -- when you say the same facing, does it mean it's three fourths and one fourth? And does it imply that there is still remaining [replace taking] 290 million of cash restructuring costs to be spent in 2009 and the remaining 175 million in 2010?

So the facing will be in accordance, what we believe. If it's got to be exactly that number or something else has to do with the timing, and you know also being European, that you know you need Workers Council permits, and it's the timing. So that is the general timing session that we believe is possible. But if it's going to be exactly 290 or 250 or -- we don't know.

But you still expect a [negotiated] of around 700 million. It could be slightly lower, but it's a ballpark for you still, this 700 million?

Yes.

The final follow-up question is from Jeff Harlib, Barclays Capital.

Two final follow-ups. First, with high-performance mixed-signal, are there areas that NXP needs to either develop new products or make acquisitions to meet your goals in targeting that market?

The second would be the add-back for exit product lines of $30 million in the quarter. What did that relate to and should we see significant add-backs relating to that going forward?

First off, relative to high-performance mixed-signal, you know the fundamentals of that business, we're, as I said, we're going through the strategic plan, so it really would be premature for me to say.

But what I would anticipate is is if we did anything, there might be some tuck-in acquisitions that would help us with specific pockets of technology, but when you look at the product portfolio we have with the strong RF capability and technology, the strength we have in our RF business, the strength that we have in our ID business, I don't envision that there is a significant amount of acquisitions that are going to be required to really be able to achieve the significant growth opportunity that we believe exists in the high-performance mixed-signal business. And Karla will address the other question.

That's one, and I might have to come back to you on that one specific, but my understanding -- what I believe it is, it's Fishkill related.

Fishkill related?

Yes, because when we stopped production or last manufacturing in Fishkill, we exited some product lines. And that's what we referred to in my comments.

Okay. Should there be more follow-through on that in the third quarter?

Could be some. Because, remember, we closed manufacturing in Fishkill in July, which is part of Q3.

Thank you, Mr. Clemmer and Mr. Sundstrom. There are no further questions. Please continue.

Thank you very much for your support, and we will look forward to talking to you in the future.

Thank you.

This concludes the NXP Semiconductors second-quarter 2009 results investors and analysts conference call on Friday, 24th of July 2009. For any further questions, you may contact NXP's investor relations department. Please visit their website on www.NXP.com/investor. Thank you for participating. You may now disconnect.