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    NXPI
    Earnings call· Jun 2026(Q2 FY26)

    NXP Semiconductors N.V. Q2 FY26 earnings call NXPI

    Jul 28, 2026 Source

    Executive summary

    NXP Semiconductors N.V. Q2 FY26 — Strong Performance Across All End Markets Driven by Physical AI and SDV

    NXP delivered a strong Q2 FY26, surpassing expectations with broad-based demand across all end markets, particularly in company-specific growth drivers like software-defined vehicles and physical AI. The company's focus on structural margin expansion and disciplined capital allocation positions it for continued profitability. Management highlighted the increasing importance of physical AI at the edge and its growing contribution to revenue, while also navigating inflationary pressures and component constraints.

    Highlights

    5

    • Q2 revenue was $3.5 billion, up 19% year-over-year, exceeding the midpoint of guidance.

    • Non-GAAP operating margin reached 35.1%, expanding 310 basis points year-over-year and 40 basis points above the midpoint of guidance.

    • Non-GAAP EPS was $3.61, $0.11 above guidance.

    • Company-specific growth drivers grew in the mid-20% range year-on-year, representing roughly 1/3 of second quarter revenue.

    • Net debt improved to $7.7 billion, or 1.5x adjusted EBITDA.

    Concerns

    3

    • Mobile revenue is expected to be down in the mid-single-digit percent range year-over-year in Q3 FY26.

    • Higher input costs are leading to inflationary pressure, requiring selective price adjustments to protect gross margins.

    • Memory constraints are impacting some customers' demand, causing them to design around the issue.

    Guidance & targets

    21
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $3.75 billion
    high materiality
    High
    Q3 FY26 Non-GAAP Gross Margin
    58.5%
    medium materiality
    High
    Q3 FY26 Operating Expenses
    $810 million
    medium materiality
    High
    Q3 FY26 Non-GAAP Operating Margin
    36.9%
    medium materiality
    High
    Q3 FY26 Non-GAAP Financial Expenses
    $85 million
    low materiality
    High
    Q3 FY26 Non-GAAP Tax Rate
    18%
    low materiality
    High
    Q3 FY26 Noncontrolling Interest
    $15 million
    low materiality
    High
    Q3 FY26 Non-GAAP EPS
    $4.11
    high materiality
    High
    Q3 FY26 Capital Expenditures
    approximately 3% of revenue
    medium materiality
    High
    Q3 FY26 BSMC Capacity Access Fee
    $70 million
    low materiality
    High
    Q3 FY26 BSMC Equity Investment
    $80 million
    low materiality
    High
    Q3 FY26 ESMC Equity Investment
    $30 million
    low materiality
    High
    Q3 FY26 Automotive Revenue Growth
    low double-digit percent range year-over-year
    medium materiality
    High
    Q3 FY26 Automotive Revenue Growth (adjusted)
    high-teens percentage growth year-over-year
    medium materiality
    High
    Q3 FY26 Industrial & IoT Revenue Growth
    high 30% range year-over-year
    medium materiality
    High
    Q3 FY26 Mobile Revenue Growth
    down in the mid-single-digit percent range year-over-year
    medium materiality
    High
    Q3 FY26 Communication Infrastructure and Other Revenue Growth
    up about 50% year-over-year
    medium materiality
    High
    2026 Data Center Revenue
    exceed $500 million
    high materiality
    High
    2026 Industrial and IoT Processor Revenue from AI-enabled Processors
    approximately 15%
    medium materiality
    High
    2027 Double-Digit Growth Outlook
    double-digit growth
    high materiality
    High
    2027 Gross Margin Target
    60%
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Automotive
    Revenue slightly above expectations. Growth driven primarily by software-defined vehicle electrification and connectivity. SDD processor design wins continue to accelerate.
    Company-specific growth drivers: low 20% range year-on-yearCompany-specific growth drivers: 47% of auto businessAdjusted growth (ex-MEMS sensor business): 17% year-on-year
    		$1.94 billion12%——
    Industrial & IoT
    Revenue in line with guidance. Growth driven by company-specific growth drivers and core business recovery, continuing strong performance.
    Company-specific growth drivers (newest processing portfolio): 40% year-on-yearCompany-specific growth drivers: 36% of industrial and IoT business
    		$755 million38%——
    Communication Infrastructure
    Revenue at the high end of guidance. Growth was driven by digital networking exposure to data center and continued ramps of UCOD RFID products.
    		$452 million41%——
    Mobile
    Revenue in line with guidance, reflecting normal midyear seasonal trends in the secure mobile transactions franchise.
    		$351 million6%——

    Operational metrics

    28
    Non-GAAP Gross Profit
    $2.03 billionup $376 million or 23% year-on-year
    Q2 FY26
    Non-GAAP Gross Margin
    58%up 150 bps year-on-year, up 90 bps sequentially
    Q2 FY26

    In line with guidance. Reflects better product mix, improved factory utilization, and solid fall-through on higher revenue.

    Non-GAAP Operating Expenses
    $794 million
    Q2 FY26

    Within long-term operating model.

    Non-GAAP Operating Profit
    $1.23 billionup 31% year-on-year
    Q2 FY26
    Non-GAAP Operating Margin
    35.1%up 310 bps year-on-year
    Q2 FY26

    40 basis points above the midpoint of guidance.

    Non-GAAP Interest Expense
    $87 million
    Q2 FY26

    In line with guidance.

    Taxes
    $205 million
    Q2 FY26

    In line with guidance.

    Noncontrolling Interest
    $15 million
    Q2 FY26

    In line with guidance.

    Equity Accounted Investees Loss
    $3 million
    Q2 FY26

    In line with guidance.

    Total Debt
    $10.98 billion
    Q2 FY26

    As of quarter end.

    Cash and investments balance
    $3.2 billion
    Q2 FY26

    As of quarter end.

    Net Debt
    $7.7 billion
    Q2 FY26

    As of quarter end.

    Net Debt/Adjusted EBITDA
    1.5x
    Q2 FY26
    Adjusted EBITDA Interest Coverage Ratio
    15x
    Q2 FY26
    Dividends Paid
    $256 million
    Q2 FY26

    Part of capital returns to owners.

    Share Repurchases
    $104 million
    Q2 FY26

    Part of capital returns to owners.

    Cash Conversion Cycle
    129 daysimproved from 140 days in Q1
    Q2 FY26
    Receivables
    33 days
    Q2 FY26

    Slightly better than last quarter.

    Payables
    60 days
    Q2 FY26

    Slightly better than last quarter.

    Debt Retirement
    $750 million
    Q2 FY26
    Net CapEx
    $69 million
    Q2 FY26
    Company-Specific Growth Drivers Revenue Growth
    mid-20% rangeyear-on-year
    Q2 FY26
    Core Businesses Revenue Growth
    high teens rangeyear-on-year
    Q2 FY26
    Physical AI Design Win Funnel
    $1.5 billionup from over $1 billion last quarter
    Q2 FY26

    Leading indicator for early-stage physical AI. Represents broad-based interest.

    Lead times
    greater than 16 weeksextended versus last quarter
    Q2 FY26

    Customers are realizing they have to place orders in line.

    Customer Escalations
    doubledsince last quarter
    Q2 FY26

    Indicates customers wanting more than current delivery.

    Front-end Factory Utilization
    low 80s
    Q2 FY26

    Expected to move to mid-80s, helping second half gross margins.

    Year-to-Date Revenue
    $10.4 billionup 17% versus same period in 2025
    YTD Q3 FY26

    At the midpoint of Q3 guidance, consistent with a double-digit growth trajectory.

    Industry KPIs

    10
    MetricValueDetails
    Lead timesgreater than 16 weeksweeks
    Backlog order bookgrowing
    Book to bill ratioabove 1
    Ai data center revenue$200 million (2025); exceed $500 million (2026)USD
    Fab capacity utilizationlow 80s%
    Bookings net order intake—
    Design wins socket pipeline$1.5 billionUSD
    Inventory channel inventory156 daysdays
    Node platform ramp schedule—
    End market segment revenue mixAutomotive: $1.94B; Industrial & IoT: $755M; Communication Infrastructure: $452M; Mobile: $351MUSD

    Orderbook & backlog

    2
    Backlogcontinues to growQ2 FY26

    growing quarter 1, quarter plus 2, quarter plus 3

    Provides a signal of 18 months out.

    Distribution Backlogscontinue to follow similar patterns as oursQ2 FY26

    Capital programs

    1
    BSMC and ESMC Joint Venturesunderwayapproximately $3.4 billion
    Spent to date: approximately $2.4 billion

    Cumulative investment in BSMC and ESMC to date is approximately $2.4 billion, representing about 70% of the total planned commitment across the two joint ventures.

    Risks & headwinds

    3
    Higher Input Costs / Inflationary PressureQ2 FY26, Q3 FY26, potentially Q4 FY26 / FY27 for new foundry agreements

    Requires selective price adjustments to protect gross margins; pricing for Q2 was neutral, Q3 guide incorporates an estimate.

    Mitigation: First move is operational efficiency; if not sufficient, selective price adjustments are made. Different from COVID-era supply issues, this is an inflationary issue.

    Memory ConstraintsCurrent

    Mobile revenue is down year-on-year; customers are trying to design around the constraints.

    Mitigation: Helping customers to design around the constraints they have.

    Geopolitical Developments (e.g., Iran activity)Current

    Direct impact of higher input costs.

    Mitigation: Offset operationally first; if not possible, pass costs on to customers. Indirect macro impacts are also considered.

    What to watch in Q3 FY26

    5

    Automotive content growth

    Next quarter (Q3 FY26) and beyond
    CurrentAccelerated growth drivers up 22% YoY, 47% of auto revenue
    TargetContinued high-teens YoY growth, accelerated growth drivers approaching 50% of auto revenue

    Why it matters

    This is NXP's primary driver for automotive revenue, distinct from industry restocking, and critical for long-term growth.

    What we see in what's driving our revenue, if you look at it, our accelerated growth drivers grew 22% this year, as we stated. They are becoming almost close to half of the revenue.

    Q&A highlights

    6

    How quickly is physical AI translating into market changes and customer adoption, especially in SDV?

    Physical AI is happening now, with design wins requiring strong AI value propositions. It starts with software-defined systems, then AI overlay. AI-enabled products already represent 15% of industrial and IoT processor revenue, expected to grow.

    “The whole notion of cognification on the edge, whether it's industrial and auto, conversation is now. I don't think we will get a design win without having a big part of a very, very strong value proposition with respect to AI.”

    asked by Joe Moore · answered by Rafael Sotomayor

    2 min read6 chapters

    Detailed Narrative

    01

    Physical AI at the Edge

    NXP is strategically positioned for the shift of AI from the cloud to the physical world, specifically in vehicles, factories, and robots. The company leverages its leadership in edge AI compute platforms, integrated system solutions, and broad market reach through its ecosystem. This 'neural axis' architecture is foundational for deterministic and safe physical AI operations, with AI-enabled processors expected to represent approximately 15% of industrial and IoT processor revenue in 2026, more than doubling from last year.

    02

    Data Center Expansion

    The company's data center exposure, primarily in the control plane of AI infrastructure, is rapidly growing. Revenue from this segment was approximately $200 million in 2025 and is expected to exceed $500 million in 2026. This growth is driven by top-of-rack switching and processes controlling rack components, which materially broaden NXP's addressable content and extend its franchise well into the future.

    03

    Automotive Content Growth

    Automotive revenue grew 17% year-over-year, adjusted for the MEMS sensor sale, primarily driven by content expansion from software-defined vehicles (SDV), electrification, and connectivity, rather than industry-wide restocking. SDV is the highest-growing part of NXP's accelerated growth drivers, and next-generation products like S32N 5-nanometer and S32K5 16-nanometer are still in the design win phase and have not yet begun ramping, indicating future growth potential.

    04

    Industrial & IoT Strength

    The Industrial & IoT segment demonstrated strong performance with 38% year-over-year revenue growth. Company-specific growth drivers, including the newest processing portfolio, grew at 40% year-on-year and represented 36% of the segment's business. The core business is also recovering, contributing to the broad-based strength in this market, which has shown high 30s growth for the second consecutive year.

    05

    Operational Leverage & Margin Expansion

    NXP's Q2 results highlight structural margin expansion, with non-GAAP gross margin at 58% and non-GAAP operating margin at 35.1%. This improvement is attributed to a better product mix, improved factory utilization, and operational leverage across the fixed cost base. Utilization rates are expected to increase from the low 80s to the mid-80s, further supporting gross margin improvement in the second half of the year.

    06

    Capital Allocation & Debt Management

    The company maintains a strong balance sheet, ending Q2 with $3.2 billion in cash and $7.7 billion in net debt, resulting in a net debt to adjusted EBITDA ratio of 1.5x. NXP returned $360 million to owners in Q2, comprising $256 million in dividends and $104 million in share repurchases. The company generated $791 million in non-GAAP free cash flow, or approximately 23% of revenue, demonstrating disciplined capital allocation.

    AI-generated summary of the company’s earnings call. Not investment advice.