恩智浦 (NXPI) 2009 Q4 法說會逐字稿

Welcome to the NXP Semiconductors fourth-quarter 2009 results investors and analysts conference call on Friday, February 26, 2010. 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, operator. Ladies and gentlemen, thank you for joining us today and welcome to NXP's fourth-quarter 2009 results. You should by now have seen the results of our press release which we have put on our website. As usual, I'd like to refer you to slide number 2 of our presentation for our short Safe Harbor statement relating to forward-looking statements. Please note that all figures are quoted in US dollars and exclude the divested wireless business.

So to begin, I'd like to give you a quick overview of our improved results of the last quarter, both in terms of our own performance as well as how we saw the overall market develop in this period. I will then give you an update on the Redesign Program and give a summary of the developments in progress in our High Performance Mixed Signal strategy rollout. Finally, I'll provide you with some guidance on our first-quarter sales numbers before handing over to [Kali] to give some deeper flavor on our numbers.

As you all know, it has been a challenging year for the semiconductor industry as a result of the severe financial and economic crisis and NXP has not been immune from that. Some bold choices were required, but I now feel confident that we're on the right track and well positioned to take advantage of the increased demand we see in the market in 2010.

My confidence stems from our performance in Q4, we have continued to grow our sales across each of our segments, except for Home, and we saw improvements geographically across the US, Europe and Asia. Sales in the quarter were $1.13 billion, a 12.6% increase year on year and an 8% sequential increase on a comparable basis. As you know, this was at the higher end of our guidance of flat to mid-single-digit growth on a comparable basis that we provided in last quarter's call.

Our improved fourth-quarter sales were primarily due to our agility and ability to rapidly take advantage of increased customer demand. We were able to quickly ramp up production to match demand and our efficient and flexible supply chain also enhanced our ability to deliver what our customers require.

I am very pleased with our improvements in EBITDA. Our fourth-quarter adjusted EBITDA, excluding the effects of PPA and incidental items, came in at $171 million, which was up on the $41 million in the fourth quarter of 2008 and up on the Q3 2009 numbers which we reported at $147 million.

NXP's cash position at the end of Q4 2009 was $1.041 billion, only a slight fall from the $1.061 billion at the end of third quarter, even taking into account the payments for Redesign in the fourth quarter of $72 million. The difference in the cash position between the end of Q4 2009 and the end of Q4 2008, which was $1.796 million (sic -- see press release), is mainly explained by the Redesign payments for the full year 2009 which amounted to $385 million and an additional $286 million which was spent on bond buybacks. But I am pleased to say that the net operating cash flow was a positive $95 million in Q4 of 2009.

Looking now at our Redesign Program, I'm very pleased to say that it is ahead of schedule. The annual savings that will be realized in the course of 2011 are expected to exceed $650 million. This compares with original target of $550 million by the end of 2010.

The costs for the Redesign program are now estimated to be no greater than $750 million by the end of 2011 as opposed to the $700 million that we previously discussed by the end of 2010. Looking back, the driver behind the acceleration of certain aspects of the program and expansion of the restructuring was the adverse market conditions we saw at the end of 2008.

In terms of the acceleration of activities, our wafer fab in Caen, France was sold in June while production in Fishkill, New York stopped in July, both ahead of the original schedule. The process and product transfer programs related to the Redesign of fabs in Hamburg have been completed while ICN 5 in the Netherlands continues to be on track.

The program has been expanded to include, among others, the employee termination costs relating to the combination of our television systems and set-top box business lines with Trident Microsystems which we completed on February 8. We have also expanded the program to include the closing of an additional wafer fab, our ICN 6 facility in the Netherlands which is scheduled for early 2011 which we had previously announced in fourth quarter of 2009.

We had a very active year in 2009 in building our strategy for true leadership in the business areas in which we choose to participate. We held global deep dives in all of our business lines focused on core competencies, market potential, market opportunities, competition, technologies, key product status and the specific requirements that enable us to win in the selected businesses.

This provided the base marketing customer intelligence that led to the definition of our High Performance Mixed Signal strategy, a strategy which will take NXP to true leadership in the areas of our core strengths in RF, analog, power and digital processing. The business will be supported by a strong standard products business. We've been able to confirm our High Performance Mixed Signal strategy through in-depth discussions with our customers who've verified the market opportunity and fully support our market participation.

We've made good progress in rolling out our strategy. As I've already mentioned in Q4, we announced a transaction that helps us focus on High Performance Mixed Signal which was the combination of our digital television and set-top box businesses with Trident.

NXP will own a 60% equity stake in the new business which we believe is very strongly positioned in this segment. This transaction closed earlier this month on the 8th of February and creates a global leader in the digital home market with the IP, intellectual property, customer relationships, low-cost infrastructure and the necessary focus that's required to win in this market segment.

In Q4 we also completed a strategic alliance with Virage Logic, one of our technology partners. As part of this transaction we transferred a part of our digital system on a chip IP, personnel and expertise to Virage Logic. We will still have access to the leading edge technology without being exposed to the full cost burden. Again, this is in line with our focus on High Performance Mixed Signal strategy rather than in concentrating on system on a chip based solutions that use leading technology. This move enables us to better focus R&D activities on High Performance Mixed Signal.

I'm also pleased to report (technical difficulty) several growth segments and particularly in RF base stations. This is due in part to our ability to offer many of the key High Performance Mixed Signal products needed for complete solutions.

In lighting, our new driver and controller ICs for CFL and solid state lighting enable dimming and consumer friendly form factors. In computing our green chip family is making it easier and more cost effective for power supply manufacturers to comply with the energy efficiency specifications such as 80 PLUS and ENERGY STAR.

In Smart metering, home automation, white goods and digital power we've achieved some significant 32-bit microcontroller design wins with application-specific microcontrollers based on the new ARM Cortex-M3 and M0 technologies.

Also, in automotive our solutions are enabling new features and capabilities such as high-definition radio, toll road pricing and low power in-vehicle networking and sensors. In fact, we just had a press release with IBM sharing some of the results of the recent Dutch toll road pricing trials.

Finally, in identification, NXP is ranked number one in the top 10 of the most influential foreign RFID brands from RFID World, and we were rated number one in the Contactless Transaction IC Vendor Matrix for the third year in a row.

Furthermore, NXP started off 2010 with a great showcase at the Consumer Electronics Show in Las Vegas. We presented a selection of products and solutions that focused on High Performance Mixed Signal ranging from solid-state lighting to advanced sound solutions from HDMI 1.4 solutions to ESD production. We received very positive feedback on the show from new and existing customers.

Finally, we had some encouraging awards we received -- three EDN China Innovation awards demonstrating excellence in High Performance Mixed Signal technology and the Outstanding Performance Supplier award from Sanmina-SCI Corp.

Looking ahead we plan to increase our commitment to becoming the customer focused leader in High Performance Mixed Signal solutions supported by a strong standard products business. More specifically, we intend to prioritize investment in high-performance radio frequency, TV front end, identification, interface and automotive analog mixed-signal segments and selectively invest in other high-growth opportunities such as lighting, green power supplies, 32-bit ARM microcontrollers and sensors.

We will keep current levels of investments in discrete devices, general-purpose logic, microcontrollers, sound solutions and can tuners. Our application focus will be on automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting and industrial. We believe the combination of our High Performance Mixed Signal technologies, our broad standard products portfolio and our insight into specific applications will give us the unique ability to offer our customers the solutions they need to be successful in their marketplace.

To align our financial reporting with our strategy as well as to add increased simplicity, as of Q1 this year we will be reflecting our decision to separate our High Performance Mixed Signal and standard products business in our financial statements segment reporting. We will be reporting our numbers split by High Performance Mixed Signal and standard products. We also provide breakdowns for our manufacturing operations segment and corporate and other.

As indicated before on February 8, the transaction with Trident Microsystems to combine set-top box business and television systems business lines was completed. From this date NXP will account for its investment in Trident under the equity method.

We have made good progress through the year. In the fourth quarter we saw for the first time in the last six quarters on year-to-year growth on a comparable basis. We continue to build on the momentum of third quarter. This balanced that tough first half of the year where the business was significantly impacted by the global economic and financial crisis. I'm particularly pleased with improvements in sales, EBITDA and our gross margin we deliver every quarter. Kali will share more details on these numbers.

The success to date of the accelerated and expanded Redesign Program, the execution of our strategic focus on High Performance Mixed Signal, improvements in our capital structure and our agility to respond to market conditions is certainly showing through in our financial results and I can say with confidence that we are better focused and better equipped to win in 2010 with an expectation to grow faster than the market with clearly improved profitability.

However, it will be another year of hard work. We still have a way to go to achieve a position of true leadership in the businesses we have selected to participate in and to complete the execution of the redesign program. I would now like to hand over to Kali to take you through some of the operational highlights in the financial details of our performance in the fourth quarter. Thank you.

Thank you, Rick. I will now give you an overview of the financial performance for the quarter. We reported sales for the fourth quarter of $1.13 billion which represent a 9.3% nominal and an 8% comparable increase from the third quarter, showing a visible increase in demand across all business segments except for Home, and all regions. Q4 was 12.6% higher than the fourth quarter of 2008 on a comparable basis as a result of improved economic conditions facing the industry and the wider economy.

Gross margin continued to improve from 16.8% in Q1; 32.3% in Q2; 35.8% in Q3; and now 38.6% in Q4. This is an improvement of $66 million between Q3 and Q4 primarily as a result of higher sales and continuing effects of the ongoing Redesign Program. Operating expenses were $365 million compared to $323 million in Q3. The increase was mainly due to non-cash charges for share-based compensation programs, unfavorable currency effects and increased IT costs.

Fourth-quarter adjusted EBITDA, excluding the effects of PPA and incidental items, came in at a profit of $171 million which was up on the profit of $41 million in the fourth quarter of 2008. And up on Q3 2009 when the profit stood at $147 million. Net income for the quarter was a loss of $349 million compared to a loss of $649 million in the fourth quarter of 2008 and a profit of $412 million in the third quarter of 2009.

The reduced cost in Q4 as compared to Q4 was mostly explained by higher sales and better gross margin, lower losses related to equity accounted investees supported by reduced net interest costs. Cash at the end of the fourth quarter was at $1.041 billion. The net cash provided by operating activities for the fourth quarter was $23 million, including restructuring payments of $72 million and interest payments of $[150] million.

Finally, our book to bill ratio was 1.21 in the fourth quarter of 2009 compared to 1.11 in the previous quarter, this compares to a book to bill of 0.71 in Q4 of 2008. You have found today on our website the Q4 report of 2009. The audited annual report will be published on Wednesday, March 3. And we expect an unqualified audit opinion from our external auditors.

You also will see in this report that the management has assessed the design and operating effectiveness of controls within the scope of Sarbanes-Oxley. Although the vast majority of our controls and procedures were operating effectively, we identified deficiencies in our internal controls relating to the execution of procedures surrounding the preparation and review of income tax provisions as of December 31, 2009 which we classify as a material weakness.

So there is no adjustment required in the figure. It merely deficiency the control procedure and we have been able to make sure our financial statements as per year end are correct in all material aspects. In the meantime we are taking necessary actions with respect to the control procedures and we take additional measures in the weeks to come.

Now I'll return to the performance of the individual business units. All figures I quote exclude the effects of purchase price accounting and incidental items and are provided on comparable basis unless stated otherwise. As a reminder, at the start of 2009 we introduced a new method of cost allocation of operations in corporate and others to the individual business units in order to have fully allocated P&Ls to the level of EBIT.

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 manufacturing operations. The segment information for prior periods has been restated to reflect this reallocation. Automotive and identification sales came in at the $328 million compared to $269 million in the third quarter and comparable increase of 19.7% and $263 million in the fourth quarter of 2008.

The increase in demand, Project ramp-ups, debt to delivery performance and increased demand in the eGovernment projects contributed to the sales increase in the fourth quarter. Adjusted EBIT amounted to a profit of $56 million compared to a profit of $60 million in the fourth quarter of 2008. Adjusted EBIT on a sequential basis also improved from $34 million in Q3 mainly related to higher gross margin due to the increased sales of the reduced cost base in our factories.

From an operational perspective we saw a major design win with a Tier 1 customer on a highly integrated audio power solution. Furthermore, I am pleased to say that Audio of America 2011 models will offer NXP high-definition radio technology and that we have achieved the major design wins for Keyless Go at multiple car manufacturers.

Finally, NXP has won a supply contract with Chinese ePassport SmartMX chips and we are rated number one and Contactless Transaction IC Vendor Matrix for the third year in a row.

Multi-market semiconductor sales amounted to $530 million compared to $486 million in the third quarter, representing a comparable increase of 7.6%. It was also significantly higher than Q4 2008 when sales came in at $424 million. The increase in sales was across the whole product portfolio. The growth in sales of components for radio base stations continued in the fourth quarter.

Adjusted EBIT came in at a profit of $44 million compared to a profit of $56 million in the third quarter and a loss of $47 million in the fourth quarter of 2008. The sequential decline in adjusted EBIT was mainly due to increases in the operating expenses mainly due to the additional investments in accordance with our High Performance Mixed Signaling strategy, partly offset by higher gross margin.

Looking at the multi-market semiconductors in more detail, we have seen strong demand in the third generation base stations business across all our major wireless infrastructure clients. We have managed to further increase our customer base and increase market share for power adaptors, CFL, LED lighting, we had high impact design wins in home automation with the Cortex-M0 and Cortex-M3 and broadened our Cortex-M0 engagement in digital power.

And because of our supply chain flexibility we were able to take advantage of the sudden increase in customer demand that led to the highest ever quarterly volume output in general application and logic.

In-home sales came in at $211 million compared to $217 million in the third quarter of this year. A comparable decline of 3.1% and $223 million in the fourth quarter of 2008. On a sequential basis the decline in sales of digital TV systems, set-top box and can tuner was partially offset by the increase in sales of TV front-end component business.

Adjusted EBIT in the fourth quarter amounted to a loss of $28 million compared to a loss of $13 million in Q3 and a loss of $40 million in the corresponding period last year. In our Home segment we announced that NXP will be powering DirecTV's new generation high definition satellite DVRs.

Panasonic also announced that they have selected the NXP DVB-T silicon tuners in its Blue-ray disc recorders. And our video [compressor] and 3-D TV solution continue to gain high interest and are ramping up at multiple customers.

Sales in manufacturing operations amounted to $46 million compared to $52 million in the third quarter and $47 million in the fourth quarter of 2008. Adjusted EBIT was a profit of $8 million compared to a profit of $9 million in the third quarter and a loss of $20 million in the same period last year. The utilization of our manufacturing base continued to improve to 71% compared to 69% in the third quarter of 2009 and 56% in the fourth quarter of 2008 based on [wafer counts].

Sales in corporate and others were $[15] million compared to $10 million in the third quarter 2009 and $22 million in the same period last year. Adjusted EBIT was a loss of $4 million compared to a loss of $37 million in the third quarter and a profit of $1 million in the final quarter 2008.

Finally moving to the outlook, considering the current business development and the unusual seasonal characteristic of this first quarter, we expect sales to be flat to slightly up in the first quarter of 2010 on a business and currency comparable basis. Thank you. And we would now like to open up to your questions. Albert, can you take over?

Thank you, Kali. This is Albert Hollema; I will facilitate this Q&A session, addressing the questions to Rick and Kali. Would you please limit yourself to one question? This will give more people the possibility to ask questions. Any further questions may be answered after our eventual second Q&A poll by the operator or may be addressed directly to me after the end of the call. With that I would like the operator to start the Q&A session.

(Operator Instructions). Jeff Harlib, Barclays Capital.

Rick, could you talk a little bit about each of your businesses in terms of demand? Clearly your book to bill was very in strong Q4. It looked like lead times are probably extending. So if you can go through your individual businesses consistent with your 1Q guidance that would be helpful. And also commenting on whether you think some of your customers are building inventory?

Sure. So, whether our customers are building inventory, that's the $64 million question obviously. We don't believe that there's a lot of inventory that's being built at the current time frame. There could be some -- potentially some double ordering as customers are scrambling to be able to meet their supply chain requirements.

What's happened is the industry is really in a relatively short period of time seeing a significant uptick in demand. And frankly we've been able to participate in that in a significant fashion and actually support our customers in their increased requirements in a better fashion than many of our competitors. And when you compare our results with most of our competitors you see that.

What we've seen is with the sudden uptick in demand we had some product areas where we're basically sold out, so we're constrained by capacity. It's probably -- when you look at the business lines we have, it's roughly one-third of those businesses that have been falling to the standard products category, the areas where there's pin for pin compatible replacement.

But as we really focus on High Performance Mixed Signal and move forward, most of those areas -- we're in a position where we don't have a direct pin for pin comparable part. So our supply chain is very focused on ensuring that we can meet those requirements for our customers and support them in the fashion that they need to be to be successful in the marketplace.

As far as specific product lines, I don't know that we need to cover the specific ones. It's more of the standard products, again where there's pin for pin compatibility. We've seen our lead times move out in time. That probably is a little bit of our book to bill increase as we've moved our lead times out to reflect the increased demand that we see. But the general market in the near term continues to be in a very positive situation. And that's driven by the number of the digital TVs and the number of cell phones that continue to go out.

When you get down to the economic environment and look out beyond the next four or five months the thing you have to worry about is how can those continue to be sustained? Consumers continue to spend on those items today and the real question is will they continue? Fortunately for us a lot of our business is not directly related to the consumer whether it's in the telecom infrastructure and as we see the continued growth of data over the wireless networks as opposed to our moving more away from voice. We expect to see a continued increase in demand for the wireless base stations.

In our new applications in microcontrollers we continue to be successful with the design wins on a broader array in more applications and different applications than we've had in the past. And we continue to be excited about those opportunities associated with that. But in general I think it's pretty much across the board we see strength of demand in most of our areas, identification with some of the recent design win programs we have, we continue to see positive growth as well.

And the automotive industry also continues to be very strong relative to a sales viewpoint -- at least as we see car sales reports, that continues on even though the stimulus programs have most stopped at this point in time. Although it is important to note that China will be the largest region in the world from a car production viewpoint in this year.

Okay. And just a quick follow-up on the restructuring. Clearly your gross margins benefited from the restructuring this quarter. Can you talk about where you are in terms of the realization of the planned $650 million? I know there was $250 million OpEx and there was some cogs. And just kind of the roll out of the near-term actions?

So, the practical near-term actions were basically related very much to that in the early part of this year right now one of the fabs has been closed in Hamburg. At the end of -- or end of Q2, beginning of Q3, ICN 5 will be closed down. And some of the additional [matters] are happening as we speak because with the signing and the start of the new Trident with our part of the set-top box, some of those are happening right now. So was that an answer to your question?

Yes. Just also on where you are maybe on the run rate of realized savings.

I would say we are two-thirds done, one-third to go. And as you noted also, the new fab that we announced in Q4, the ICN 6, that will be closed in the first half of 2011. Because we need to move some products out that's going to take some time.

Okay, thank you.

[Gilles Barros], Deutsche Bank.

Hi. Just a question here on cash restructuring. The spend that you had in this quarter I think was quite a bit lower than I think what was expected to sort of round out the numbers you identified you would spend this year. Can you talk to I guess why it was lower this quarter, what may have been deferred into next year -- it sounds like the total number is the same, but maybe you could give some detail there.

When you give indication, you never know because this is cash spend, it's actually when people receive the severance payment. So I would say that on the total -- the [$433 million] that we spent year to date is in-line. I think the additional 50 that we announced today, some of that -- the majority of the additional 50 is actually in 2011 and that has to do with when the people are leaving ICN 6.

Okay. And can you talk to what that cash spend looks like? In other words, how does that now spread over 2010?

I can't give you the exact details. But I would say that, as I told you of the -- of the last part I would say 50, which is the increase that the majority is in 2011, and then I think you can spread it probably a little bit bigger in 2012 going forward -- 2010 going forward. I don't have the exact. it has to do when people actually are leaving.

Yes, I think just for background purposes, we had, as Kali talked about, a big chunk of people that went out in January associated with the facility in Hamburg. And then we'll have another slug of people that will go out in conjunction with one of the fabs in Nijmegen mid year.

And then you have between -- between February and April you will have some of the people that is being redundant here who has not transferred over to Trident. That's the big parts. The exact dates I can't give you.

Okay, all right. And then just my quick follow-up. You've got a drawn revolver, I was looking at the cap structure. That's obviously the nearest maturity with I guess some traction in the business. What is the next priority for you and when do you address that? Thanks.

Just as we state in the report, so we will opportunistically go out and buy back bonds. Like we just announced in the report we took out 14.5 as a subsequent event. Then obviously we are working on the cap structure. We have time because the first maturity is in 2012 and that's the revolver in September and then we have the big maturity of bonds in 2013.

All right, thank you.

David Phipps, Citigroup.

Hi, thanks and congratulations once again on the strong sales outlook. Can you talk a little bit about OpEx's? When I looked at -- and the gross margins were better than we were expecting. But OpEx was up $124 million sequentially and at about a 45% rate that should have been up about $45 million and it was up, as I said, $124 million.

As I'm trying to tie something out, are some of the -- when you classify some of the results you say for EBITDA you have other incidental items of about $73 million and that's a very big number to add back when you're making adjustments to EBITDA. So I'm trying to figure out if that $73 million is part of either the SG&A bump or the R&D bump that happened during the quarter?

Are you referring back as reported or more what I call as adjusted where you make those comparisons?

I'm doing the as reported.

Okay. In the report you can see that you have incidental items of 51, and don't forget that you also have an impairment charge of 69.

The 69 we took out, that was called out.

Good. Maybe we should take that off-line and go through it in a better way, because it's a number of movements. If you look upon -- you're talking about sequential increase?

Yes. What I'm trying to get -- I'm trying to figure out more for projection purposes what it's going to be going forward for one. And two, I'm trying to get when -- your number for EBITDA, which tracks very closely to cash production this quarter, it's still highly adjusted and has the $73 million of adjustments from other incidentals, the $44 million from restructuring and the $69 million.

So I'm just trying to piece down the $73 million. And maybe -- you mentioned $25 million as a stock comp number and I haven't seen the stock comp number before. Did you call that out this time because it's such a large number and it hadn't been in the past or is that going to be something that (multiple speakers)?

(multiple speakers). It's a big number this time, it's $60 million sequentially and (multiple speakers).

It was $9 million in the third quarter, right?

The way we account for the stock compensation is that when the Company starts to go better you obviously have a positive effect on that on the valuation. And when it goes down it is slightly different. So it's a big movement in that. Compared to last year the fourth quarter is actually $25 million, which is -- which we don't adjust EBITDA for because we go from US GAAP and then we'll take out depreciation basically.

Sure, sure. I guess so what I'm trying to get to, I'm trying to figure out what the right level of R&D to sales and SG&A to sales is likely to be as we go forward. Because you've made a number of adjustments to your business and this quarter it got bumped up a bit.

Yes, it got bumped -- we have in the report I think on slide -- we have basically a reconciliation where we talk -- we have some currency effects of 10.

Yes, but the currency effects are going to happen positively and negatively, right?

Yes, they bump up and down all the time.

Yes.

But sequentially the big numbers are in SG&A is in IT (multiple speakers).

So $14 million for IT and $25 million for stock comp.

Yes, 16 for stock and currency 10.

Okay. And so as you roll out some of the Trident will the SG&A drop -- R&D should drop off pretty meaningfully because of that because when you're moving some of the Trident things out, but will SG&A move down meaningfully?

Yes, because that's part of the restructuring that we announced now because we have to adjust the central G&A and [sell ex] when we are a smaller company and that is part of the accelerated Redesign.

Just one more clarification. In the Trident or in the Home business that's where you had your greatest loss making sector. And so in removing Trident from your business, or the business that you sold to Trident, would your margins -- gross margins be higher or lower in the fourth quarter if you had not had it?

What we move over -- what we move over is DTV and set-top box and TV front-end we keep and you have to be very open. In Q4 -- without giving any projection, in Q4 the business that now has been transferred over to Trident had a lower average gross margin.

Okay. All right, well, congratulations and that's all I have.

Sundar Varadarajan, Citadel Securities.

Hi, thanks. Before I ask my actual question could you clarify exactly what the stock comp was for this quarter? Because you talked about an increase of 16. I don't know what it is for the third quarter. So what was the actual stock comp number for Q4?

16.

Oh, the number -- the total dollars was 16. Thank you. In terms of -- in terms of your guidance, you have a book to bill ratio in the fourth quarter of 1.21 which was significantly higher than the 1.11 in the third quarter, yet your guidance seems to be flat to slightly up sequentially. Could you reconcile the two for us? Are you being conservative or is there something going on with the book to bill that's kind of overstating that book to bill number?

Well, I think the book to bill possibly could have been somewhat increased based on our longer lead times. So people, as the lead times linked and people are required to book their orders sooner by definition. And so what happens is you have an increase in orders associated with that while the sales grow at a slower rate. So it actually has an effect of increasing your book to bill ratio.

As we set the expectation for Q1 of flat to slightly up, we think that in some of our business lines, as we said, we're capacity constrained. So there are actually capacity limitations that keep us from shipping more in some of those product lines. It's probably important if you were to look at our Q4 run rate level and just assume that we would be flat since we said flat to slightly up and compare that to Q1 of 2009, you see a very strong increase in revenue, some 16% to 17% increase in revenue, so on an annualized basis.

So, I think when you look at the business, we continue to feel very positive about the sales. We've gotten very good feedback and reactions from customers about our continued improvement in being able to support their upside request, but we also have capacity limitations that have to come into account relative to expectations on our Q1 sales activity.

The other thing is when there are certain supply shortages there is a tendency from some customers to place longer orders. That is also -- you cannot actually always make a one to one comparison on book to bill in a guidance.

Okay. And then again, based on the actions you're taking in Hamburg and the fact that some of the costs related to Trident comes off in Q1, could you give us a sense for directionally -- based on your projections is it fair to assume that the margin should continue to improve in the first half of the year?

Yes, in sales it's flat to slightly up and costs are coming out, that's a fair assumption.

Okay, great. Thank you.

[Aris Asythry], Credit Suisse.

Thanks for taking my question. Freescale has publicly gone out and put up an operating model target. Obviously there's a lot of moving parts in your operating model right now. But could you walk us through what your potential gross margin, OpEx and EBITDA margin targets are over the medium term assuming modest growth in your businesses?

Well, first off, we're continuing to refine that, so we'll do that. I think in our High Performance Mixed Signal business, we think that the gross margin potential of that business is very consistent with our competition which is typically over 50% gross margin associated with it.

Our standard products business will run a lower gross margin, but still run at a very healthy EBITDA -- EBIT level. So we clearly will be trying to, at the appropriate time, come out and be more specific with those target models. But I guess when you look at it we feel quite comfortable that we'll be in a position where we'll grow faster than the market.

Okay, I appreciate that. And then if you looked at the Trident proxy, it looks like 3Q 2009 gross margins for that transferred businesses were higher than NXP corporate, something like 330 basis points. But then the OpEx was obviously -- it was a big offset, it was much higher in the transferred businesses.

I think, Kali, I heard you say that it was -- the gross margins are actually lower for Q4. Could you just tell us on a full-year basis -- obviously there's a lot of seasonality. On a full-year basis what we should we be thinking about in terms of how much EBITDA margin difference would there be in your overall business with and without Trident?

I don't want to give any guidance on that. But --.

Okay.

The business that has been transferred has had a -- or that business that we partly transferred and we will take out that the additional cost that we have that is not being transferred. That total package had a lower gross margin than the package we keep.

That's even for the full year basis, is that right?

Yes.

Okay. And then --.

You can't make that what -- it transfer because it's a synergy in the transfer and we keep certain cost which is part of the -- stranded cost which is part of the restructuring.

Okay, that makes sense. Okay, that's all I had for now. Thanks.

Michael Boam, BlueBay.

Sorry, I didn't catch the start of the call, so some of these may have already been dealt with. Firstly, on the capacity loading, obviously for the second quarter in a row your sales increased fairly significantly, but your internal loading really didn't respond very much at all. Is this down to the fact you are having to in source chips to meet your sales because you're not able to manufacture them yourself? And if that is the case, will this loading only really start to move up when you move on to the next phase of the restructuring, Hamburg and ICN 5?

So, I think first off it's important that we are clear with our loading factor. So when we talk about loading factor, that's really based on outs, wafer outs, not wafer loading. So if you really look at a factory to see how it's loaded, it's more on wafer starts as opposed to wafer outs. And clearly if you look at late in the Q4 run period, we were running at a much higher level of capacity utilization than what would be indicated off of the wafer out basis. So that's the first factor.

You may have missed part of the discussion, But we have -- some of our business lines that are operating at basically capacity. And so we're having to increase incrementally capacity to be sure that we can be able to step up and support our customers with their increased demands associated with it.

But as far as a significant increase in purchase wafers, that's not the fact at all. In fact, we're ramping our internal capacity, which I included in internal capacity SSMC which is the majority owned joint venture relationship with TSMC in Singapore. But we are definitely increasing our capacity in support of our business.

Okay, so over what portion of your product lines are you now operating pretty much at full capacity if you don't mind sharing that?

Well, I would say that as far as the percentage it gets hard to specify because it moves around on a quarter-over-quarter basis. But in a lot of our standard -- in a lot of our products that are standard products where there's pin for pin compatible alternatives, we're basically sold out or operating at high levels of utilization.

Okay. And then if I can just have one follow-up. In terms of the cost savings, how much do you estimate of the $650 million is now done? And how much of that that is done has actually shown up in the numbers so far? I guess what I'm after is what is still due to show in the numbers from what's already been done? If you see what I mean.

So what I said before in a question is we're probably two-thirds done.

Okay. And --.

Then I gave an example that Hamburg is being closed now and ICN 5 in the middle of this year. The stranded costs or the costs that we kept in relation to the Trident deal are being executed as we speak and we'll have a phase-out period. And then, as we state in the release, the ICN 6 is in the first half of 2011.

Okay. If you're two-thirds done, that's what? About $400 odd million. Of that $400 odd million how much has already shown up, do you think, in the numbers? Because obviously some of this stuff hasn't had a chance to annualize yet.

No. And I would say of what we have spent, the $433 million, I would say the clear majority of it has shown up. But there's more to come.

Okay. So is it fair to say that until Hamburg happens that we shouldn't expect to see significant increases sort of in your margins until you get the next round of fab closures now?

Well, the Hamburg, to be specific, closed in January of this year, so there clearly will be cost savings that will be coming from that that will be reflected in our first-quarter results. So you'll continue to see steady progress in our margins.

Okay, thank you very much for your time.

Jake Kemeny, Morgan Stanley.

Good morning. Can you tell us how much additional capacity you have for debt repurchases?

Can be tell me what the bond price is going to be tomorrow?

No, but in your restricted payments basket you have limitations.

EUR50 million.

That's how much you have capacity remaining?

Yes.

Okay. And can you tell us how much capacity you have to incur additional first lien debt?

We have a first lien basket of EUR450 million, right? EUR400 [million].

But is any of that consumed by what's been incurred already or is that additional capacity?

Additional capacity.

Okay. And then on the last call you told us that you thought your run rate CapEx would be somewhere $100 million to $150 million on an annual basis. Would you care to update us on what you think 2010 CapEx would be?

It's going to be higher than that, yes. Clearly with the increased customer demand we've seen, we'll step that up to ensure that we can meet our customer requirements, which, especially in our High Performance Mixed Signal it's extremely critical that you support your customers with critical increases in demand given that you're primarily sole-sourced in those parts. So, you'll see a step up in our CapEx investments. In fact we'll invest a significant share of what we did in the full year 2009 in the first quarter of 2010.

And you also remember, when we talked about that number we talked about what should be a level based on what we were tracking in 2009 because we basically only came in at 82 because we had been re-utilizing equipment very tight. So I would like to add that, so it was not for 2010, it was a 2009 number. And it was based on what we should have done under normal circumstances in that year. Okay?

Okay. And I'm sorry, so you're saying you'll do more than $150 million in 2010?

I think it's premature for us to talk about the full year; it kind of depends on the market environment that we see in the second half of the year. We clearly have stepped up our CapEx investments and, as I said in Q1, we'll spend a significant portion of what we did in the full year 2009.

Okay. And then just one last quick one. Of the remaining fabs to be shut down, how much of your current capacity does that represent?

Well, it's a relatively small share for the ICN 5 facility and it's more of a unique capability that will transition. In the case of the ICN 6, a big share of that is for our logic products which are more of a true commodity when you think about it from a pricing and cost viewpoint. And operating in a 6 inch facility doesn't give us the cost leverage that we'd like to be in a position to be able to achieve. So, as we look at that what we've done is we developed a relationship with an 8 inch facility in China that will give us a significant cost advantage to be able to participate.

Okay, thank you very much.

David Caldana, JPMorgan.

I just wanted to come back to clarify something just on the OpEx and in looking at some of the one-off charges in the fourth quarter related to IT and the non-cash share compensation. Was the final answer that you wouldn't repeat that non-cash compensation in the first quarter or will it just be at a lower level than what you accrued in the fourth quarter there?

It's depending on our performance.

Okay. So I mean, but if you had performance in line with what you did in Q4, then is it (multiple speakers)?

If our performance continues --

Yes.

And then you evaluate us on that line, if there's a good performance the accruals for share-based compensation goes up. So they become higher with good performance.

Okay. So basically -- so the only really one-off item I guess from Q4 then to worry about when we're trying to translate Q4 to Q1 OpEx then would be the IT costs? Is there anything else that you expect in Q1 that would be one-off in nature?

Not that I have in my mind right now.

Okay. And just on gross margin, is it fair to assume a relatively similar mix in the first quarter relative to Q4 or is that just too much of a simplification to make at this point?

You're asking -- I don't want to give that because you might come to the wrong conclusion. But as Rick said, we are focusing very much on the high-performance mix signaling strategy. And as he said, in certain areas of the standard product we are sold out.

Okay, thank you.

Phillip Armstrong, RBC Capital Markets.

(inaudible) just three points. In your guidance you say unusual seasonal characteristics in the first quarter. Can you flesh that out a little bit? Secondly, working capital, is it likely to be a use of cash in 2010? And then third, given that the market seemed to be coming back quite fast, any second thoughts on closing these fabs down?

So first on the unusual characteristics, I think what you have to look at -- it's very hard to look at the growth and try to relate it to a historic basis based on the strong demand we've seen in Q4, the strong uptick, and looking at it on a percentage basis. So when we talk about unusual demand from what historic pattern would be, that's kind of what we're talking about is (multiple speakers).

So you're saying basically better than [seasonally unusual]?

Yes, I think that we -- typically the semiconductor business would see a decline in Q1.

Right.

And so that is the reason why we don't anticipate seeing that is because of the unusual market characteristics. I'll go ahead in jump over to the third one if it's okay and then let Kali talk about working capital.

So on the wafer fabs, we'll modify the schedule date to the extent we can negotiate that with the unions and work councils as appropriate for demand requirements. But really the focus of these is really to be able to drive true cost reduction and ensure that we have benchmark cost that allows us to be competitive with the leaders in the industry. So, fundamentally the decisions we've made associated with that are still consistent and really don't change through that process.

Regarding working capital, I would like to say that we had very strong collections in Q4. We didn't really -- we went down on inventories and payments came in online. So usually in the semiconductor business, you usually have the low points of the cash flow in Q1 because you -- as Rick said, you go down in sales while you pay your suppliers with the lower collections.

This year for Q1 it appears not to be the case with our guidance. But you usually have a little bit more of maintenance payments and so forth in the first quarters. And also you have some veritable pay compensation in the first -- but that's all the guidance I want to give on that. And as we said, we only guide one quarter ahead. But we're working very hard with making sure that we are getting to best in class working capital ratios.

Okay. Because in the past you've obviously had some pretty big negative quarters in working capital and I assume going for 2010 you're going to manage that much closer?

But also remember, we have been historically down 7% to 10%, which means that you pay your suppliers a basis somewhere 70 to 80 days and you collect on the 40'ish days. Which means that in Q1 you have it in.

All right, thank you.

[Vlad Steinberg], RAM Partners.

First of all, just if I focus on R&D and general administrative expenses, on an adjusted basis both of them went up, particularly G&A on a sequential basis from $70 million to $105 million in Q4. What's the reason for that and then same for R&D? And what's the outlook going forward?

First of all we -- as we said and also in previous calls, part of the reason why G&A went up is because of the IT costs. That is in the report, the $[14] million. And it (multiple speakers).

But I thought that's taken out -- I thought that's taken out on an adjusted -- I'm talking about an adjusted basis.

Oh, no. That is the real increase because basically all our IT is outsourced and a number of invoices came in. It was an increase of $14 million. So the comments that we made is on a clean basis of the $14 million. And the $16 million in share base compensation is because it's clean, it's not an incidental item.

And then R&D?

R&D, it's a bit around some investments that were down and we specify as investment in high-performance mix signaling. But also a tendency of getting subcontracted work coming in a little bit uneven over the years. They usually talk about the 13 months when you work with subcontractors -- when they clean out the books and make the final invoice.

So are we to expect that it drops back to the $170 million to $175 million range?

(multiple speakers) give you any number, but that's the normal pattern.

Okay. And then IT costs of -- this $14 million increase, is that going to be on an ongoing basis normalized level?

IT is going to come down. We are driving down IT costs.

Okay. And then, as I think about the -- just on the gross profit, do you expect margins to increase if you exclude any cost savings from your restructuring programs just on the basis of utilizations going up? And I would expect with increasing levels utilizations go up and margins go up no matter the restructuring? Would that be correct?

Looking at it on a longer period of time, I think you can expect our margins to go up for utilization, for cost savings and for the change of mix of our products as we move towards more of a High Performance Mixed Signal basis. On a quarter-by-quarter basis I don't know that you can accurately reflect those trends. But when you think about our gross margins over a longer-term basis, I think all three of those are significant factors that will influence the increase in our gross margin.

Got it. And last one on the manufacturing segment. The operating profit on an adjusted basis went up -- actually it's about consistent, never mind. Thanks, that's all for me.

[John Fusick], [GCA Advisors].

I guess most of my questions have been answered. But specifically on the Home segment, you talked about I guess set-top box demand being weak there. Is that something you're continuing to see at this point?

I think it kind of bounces around a little bit more than -- and it's not consistent at all with overall consumer demand. It's more when the operators want to deploy that and as they stock their inventories to be in a position to do that. And we haven't given any guidance for the current period, so it would be inappropriate for me to talk about that.

Okay, that's fine. Thank you.

[Scott Sand], UBS.

This is actually Robert Hopper. A couple questions here. I guess first one on cash. Could you give us an idea what the cash subsidy was at the end of the year, please?

It's actually on slide 15 in the report.

Oh, sorry, I did not see that. Maybe if you talked a little bit about (multiple speakers).

(multiple speakers) questions?

Sorry. I can dig for that.

It's 260 -- 263, if I remember right.

Thanks. Can you talk a little bit about sort of how you think about (multiple speakers).

236, sorry, 236.

Okay. Can you talk about how you think about the overall cash position as we go throughout the year, excluding the SSMC cash? If you think with all the restructuring charges, increased CapEx, that you'll be able to hold the line on that in terms of being on a breakeven perspective or should we expect to see further just burn throughout the year? Just some general guidance on that.

I don't give any guidance on our cash projections. The only I can say is we work hard, we are in a lower cost or cash burn than we ever was in the last couple of years. And we've got to have, as we have said in the guidance, an unusual Q1. We say it will be flat to slightly up. And I think I said (inaudible), but we work very hard with it. And you have all the numbers of how much left of the restructuring.

Okay. I guess on the guidance -- I just want to get back to that. I guess it was a little unclear. When you're talking about the guidance are you talking about the businesses excluding the assets that you transferred over to Trident? Or is that including one month of the Trident -- the assets that were transferred to Trident?

So the guidance includes company total sales, okay, which means that it will have one month of full Home sales and then two months without.

We should be clear, on that total company sales we will be doing manufacturing cooperation service agreements for Trident. So what you'll see included in our revenue for a period of time will include all of the remainder factoring costs that would have been reflected but just with no margin associated with it. So it will still have some revenue that will be reflective of the Trident business just to be sure that there's no misunderstanding.

Okay. What's the expected change from the revenue that you had reported versus the revenue that you're going to be getting from the relationship that's coming in at zero margins?

(multiple speakers) gross margin out of that business and kind of get a mindset around it.

Okay. But the core businesses -- your guidance (inaudible) implies that your core business is going to be actually growing faster than flat to up slightly.

That would be correct.

And then lastly, just on the stock comp for a second. If I go back, fourth quarter of 2008 you guys reported that you had $13 million of stock comp. In this report you say $25 million of -- not clear if it's actual or if it's year over year. And then you say sequentially it was up $16 million. What is (multiple speakers)?

It's up from Q3 by $16 million. And it's up compared to Q4 2008 by $25 million.

Okay, and then the stock comp in the fourth quarter of 2008 was what? I had it at $13 million.

I know how much it was up. Let me note (inaudible) and come back to you what exact numbers.

Okay, I think the transcript (multiple speakers).

I just want to be [sure], that is the way how we internally valuate according to the US GAAP, but it has requirements how we have to valuate this in the books. It's no cash out.

Okay. Thanks very much.

Thank you. So, thanks for joining --.

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

Thank you very much, Operator. Thank you for joining us today. We are pleased with the progress we've made over the last few quarters associated with our Redesign Program, aligning our costs, the improvements we've made associated with our capital structure and clearly the deployment of our High Performance Mixed Signal strategy. But we still have an opportunity for a lot further improvement that we're very focused on trying to achieve. So thank you again for joining us. And thank you for your support.

This concludes the NXP Semiconductor fourth-quarter 2009 results investors and analysts conference call on Friday, February 26, 2010. For any further questions you may contact NXP's Investor Relations Department. Please visit their website, www.NXP.com/investor. Thank you for participating. You may now disconnect.