NXP Semiconductors N.V. (NASDAQ:NXPI) Citi’s 2022 Global Technology Conference September 7, 2022 12:15 PM ET
Company Participants
Kurt Sievers – CEO
Bill Betz – CFO
Conference Call Participants
Chris Danely – Citi
Chris Danely
Hi everybody, I’m Chris Danely, semiconductor analyst here at Citigroup. It’s our pleasure next to have NXP. As [indiscernible] this is the best positioned semi company out there, over 70% exposed to auto and industrial, least those are favorite [ph] end markets. It’s our distinct pleasure to have Kurt Sievers, the CEO and Bill Betz, the CFO with — the Semi Dream Team, so I’ll take a seat.
Question-and-Answer Session
Q – Chris Danely
Hopefully my mic works. Yes, it does. Alrighty, guys, so I was literally stopped by people in the halls and asked this from friends of mine in the auto industry, about shortages. How do we stand on shortages? Are they getting better? Are they getting worse? What’s NXP doing to hold these off?
Kurt Sievers
Yes, thanks, Chris. So, I’d say the short version is it’s getting a little bit better, but you probably still have to wait a long time for ordering a new car, which is loaded with electronics. So, we have across the industry, a couple of very persistent shortages, which I also estimate to carry forward easily through next year.
In total, it got a little better, which is a mix of increased supply and some softening in demand on the European side. Now, that softening in demand is way above what we can service. So, it doesn’t mean there is any revenue impact, it’s just that the gap between what is serviceable and what they would like to build, I think has shrunk a little bit, especially in Europe, since some of the demand has come down.
But overall, especially in the famous mature nodes, so say in the 16 to 90 nanometer space, there is persistent shortages, which in the end, it’s all not a miracle are really a function of a structurally strongly increased demand, which has to do with content increases, especially in — with EVs, and ADAS applications.
Chris Danely
Yes. And then I guess what is NXP doing to at least try to ensure or minimize shortages going forward for previous cycles? I know we’re always going to have shortages, much to the customers chagrin, but –?
Kurt Sievers
Yes, I think two obvious things. One is clearly we are increasing our supply. I mean, you’ve seen us growing now for more than eight quarters in a row and that is a result of gradually improved supply, both in house with our own manufacturing facilities, but also in cooperation with our foundry partners, which are providing about 60% of our of our wafer supply.
But there is another action which is equally important, which is a much, much closer collaboration with our customers to understand the future demands because part of the issue is a lack of understanding and the lack of transparency on what the demand actually looks like not the next quarter, but the next 12 to 16 quarters.
The car industry — and I say that very bluntly now had not had an understanding what the manufacturing cycle-times in semiconductors are. So, they thought from a just-in-time mentality perspective, I tell you, I need to 5,000 more products week after next, so you just produce 5,000 more.
Now, we have to tell them you should have told us four months ago and then we could maybe have a chance to do this. So, that educational process especially in direct communication between the OEMs and us, so the car producers and us has massively increased, I see this as a big, big benefit for us from being, first of all, a better supplier in understanding future demand, but also opening for us a window of opportunity for design wins, because it just created a whole new world of relationships between NXP and the car companies directly.
So, a lot of this is actually going in a triangle relationship with the Tier 1 suppliers, which are our direct customers. But I think the new part of this is the tip of the triangle which is the relationship to the to the OEMs.
Chris Danely
And some semi companies have talked about keeping a higher normalized level of inventory going forward. There has been some talk about supply chain whether it’s automotive industrial or IoT or whatever, keeping a higher level of inventory going forward. What are your thoughts on that?
Kurt Sievers
Yes, inventory definitely is one of the of the easy means which people see to help the situation. To be very clear, we as a semiconductor company, have absolutely no interest and no intention to hold more inventory for this. If anything that needs to happen further down the chain with those who need these parts.
What I can quote here is that some of the car companies actually have the idea that at least they want to have inventory, which is covering the manufacturing cycle-time. So I’d say something between three and six months of inventory for peripheral parts to be safe against any fluctuations in the manufacturing.
Now, this is not the case today, this is an intention, it is a strategic plan by some of the OEMs. From anything, I can oversee, at least for our product portfolio, none of our customers has any chance to build this as we speak, because there is simply not enough supply. So, that’s why it is an intention, but it’s not anything which happens practically right now.
Chris Danely
Okay. And then just to touch on the shortages, again, because I get this question a lot as well. Are there I guess, different parts at different times going into shortage? Or has it been, let’s call, it five, 10, 15 parts that have been consistently in shortage for a while? And is it NXP? Is it your dastardly competitors? Is it a mix? Maybe if you could just shed a little insight on what’s going on?
Kurt Sievers
Yes, it’s not that much about particular parts, it’s about specific technologies, it’s specific nodes. And most of those are indeed in the bracket between now — I’d say between 28 and 180 nanometers.
And that was ranging all the way from what you need for microcontrollers to analog mixed signal. So, it’s not just like — because there was some saying at some time, it’s particularly microcontrollers. No, it’s all across.
And since many of these shortages are originating from the foundries, it is not a NXP only or competitor A, competitor B only thing because it comes from the foundry and the same foundry is supporting all of us.
So, it’s much broader than NXP and it’s now really playing out more clearly, which are the nodes which are which are missing. And we try as an industry to build the best mix of parts from these available technology nodes. So, say, let there be a shortage, say in 55 nanometers, then the whole industry needs parts and 55. And then the artists to make sure that we maximize the cars which can be built with that available 55 nanometer capacity, which is very complicated, because there is thousands of different products by several different semiconductor companies going through 20 plus different tier one companies into 10 plus different OEMs. So, it’s a pretty big puzzle to be sure you optimize the existing capacity, but below the line, it’s still not enough.
Chris Danely
And in terms of supply getting a little bit better, is that simply because let’s say foundry X, has seen a little bit of decline in demand from a PC or handset and they’re able to allocate some of that capacity to auto and industrial or I know you guys have definitely, sort of, broaden your foundry horizons that a combination of both. Could you maybe talk about what’s–?
Kurt Sievers
It’s much more than latter, so the positive impact from the more soft demand in PC consumer and low end mobile, we haven’t seen any positive impact on the wafer supply which we need, zero. It’s really — unfortunately I have to say that clearly — absolutely zero.
And the reason is that this technology or process technology buckets are not fungible, it is different technologies which are falling free by the lower demand in — say in mobile, versus what we need in automotive.
Now, I think over time foundries have some flexibility to retool and actually create more capacity out of that, but that takes time. So that’s not a — this is not a quick move.
Now, most of the increased supply is just the straight and direct results of efforts, investments from the foundries over this over two year period now. I mean, I had the first escalations of supply shortages pretty much exactly two years ago. It’s now two years ago that I was asked into the first CEO-level meetings with automotive and industrial customers, actually first automotive and industrial on shortages and since then, I mean, the whole industry has worked manically on increasing capacity and that’s what we start to see now as a positive result. But it’s not a cross-move from mobile or consumer.
Chris Danely
Okay. Can you just maybe update everybody on your manufacturing strategy? How much is internal versus external and then where that’s trending in the future?
Kurt Sievers
Yes. So, our manufacturing strategy for the back end, I stopped there because it’s simple and straightforward is to do the majority in-house, so we are about 85%, we have our own factories. And we’ve also been able to scale them to the tune which was needed over this period. I mean, obviously, we also needed much more backend manufacturing capacity, but that’s relatively quick to add. Two lead-times were long, but still that wasn’t really the source of shortage.
For the front end, we have about 60% from third-parties and about 40% from our internal facilities where the strategy is very straightforward. What we do internally is, is all in an eight inch and at or greater than 90 nanometers. And it is very much geared towards proprietary special technologies. Think about gallium nitride, silicon, germanium, high voltage mixed signal technologies, which are proprietary and owned by NXP.
That’s what we what we use our own factories for, while all the more standard CMOS 90 nanometers all the way down to volume 60 nanometers, which we ship now in 14, is what we are getting from foundry partners. And again, that makes today about 60%. We think over time, it’s probably going to grow to 70% or even 75%.
Chris Danely
And does the current shortages or what we’ve seen over the last couple of years, has that changed — strategy, it sounds like — I think maybe we should do more internally or I guess you can’t buy fabs anymore?
Kurt Sievers
It has reinforced that strategy. I mean, it’s very obvious that we have one market share over the last two years now through this period, against all of those people who depend more in house supply.
But it’s not because we are magic, it’s simply with the option to work with foundry suppliers, you have just more options to get access to scale and cost. And I believe for CMOS, which gets excessively more expensive, if you go to smaller nodes that will even be more true, the longer you go forward.
What we are, however intensifying, and I think that’s a learning out of this period is that for those technologies, which are proprietary, we have to make sure that we also have good planning on a go-forward basis in house, which means we also have to expand our in-house manufacturing capacity, which for a long time, it looked like we have enough, but also that one is now kind of something where we — which is why we are currently spending almost 10% CapEx this year in order to get up to speed there. But the fundamental philosophy of the strategy I think has been strongly reinforced by the current situation.
Chris Danely
And by the way, is it the same situation on obtaining equipment as it is on obtaining semis the lead-times are 12 months plus? Have you seen any relief there? Can you give us any hope?
Kurt Sievers
I am hearing it’s getting a little better. Again, this is — to a large extent, I say I’m hearing because a lot of this is via our foundry partners, what they get. That seems to get a little better because indeed, that’s been part of the bottleneck.
Chris Danely
One quick number you talked about, you’re still — your, sort of, orders are still well above your capacity growth, can you give us a sense of roughly what sort of capacity growth you think you can achieve next year and has that changed and I’d really like to dig the boundaries?
Kurt Sievers
No, what we is what we said is the following; we have derisked our backlog. You might have noticed we have never published our backlog and I say this because some of our competitors spoke about the backlog size.
We never published this because we felt right from the start that it is loaded with double orders and all sorts of–
Kurt Sievers
Customers who never do that.
Kurt Sievers
Not true. Customers are people, human beings if they don’t get something they asked for more. So, that’s why it’s just normal. And it’s not easy to differentiate between what is a true order which is substantiated versus what is probably just double ordering.
Bill and I, we put a lot of effort in doing this and we have derisked it and the result from what we see now for next year is that we think we are about 80% supply covered against what we think is true demand.
The backlog is much bitter. I mean if I gave you the number you would say this is just crazy. So, after that derisking, we land at about 80% supply coverage against auto levels.
A lot of that is these famous NCNR orders, which are the non-cancelable non-reschedulable orders, where in the meantime, the level of those for next year is bigger than what we have for this year. I mean, it’s just important in the current environment where everybody fears about the macro breaking together and whatever, our NCNR order level, which is firm, confirmed orders through the end of next year are bigger already now than what we have for this year with a move between inside the portfolio.
So, we have none of those anymore for mobile, which is probably not surprising to anybody, but we have a significant increase in industrial. Automotive is about the same, which is in line because automotive was the first to escalate. So, a lot of our automotive customers gave us these orders already early for 2021 and they continue to do for 2022.
In industrial, industry has only found out too late, so they were too late to give us these NCNR orders for 2021 — for 2022, so the learning was now to be early to do this for 2023. So, we see a significant uptick, actually these NCNR orders for next year. But all together 80% coverage. Now, I don’t know how things move going forward, but that gives you a feel on how robust that still is.
Now, on the supply side, I will not guide next year. So, I will not tell you how much more we can ship next year. But it keeps gradually improving, just like we’ve had it over the past couple of quarters, which is a combination of our internal expansion, as well as the growing capability of the products.
Chris Danely
So, do you think that the — I guess the largest shortage problem, which right now appears to be in the automotive space, do you think that that could switch to the industrial space given those dynamics next year?
Kurt Sievers
Chris, the biggest problem isn’t industrial currently, at least for us. I mean, I can only make that statement for–
Chris Danely
I guess the automotive customers are just the loudest.
Kurt Sievers
They had apparently a better lobby and a better way to express their needs. I think the bigger gaps we have currently is in industrial. The good news is that from a technology or capacity fungibility perspective between industrial and automotive, it’s quite good. So, if either one of them softens, we can move to the other, which is very different to what I said about mobile and consumer markets before we cannot really shift very much. But between those two, we are quite fungible.
Now, it needs time. I mean, it’s still — if you think about cycle-times manufacturing, it’s not a quick action, but fundamentally, it’s possible.
Chris Danely
Okay, let’s talk about your foundry strategy and I guess what’s changed as far as the number of foundries you work with and what you’ve done over the last couple of years, as far as expanding the foundry base, and how much that’s helped?
Kurt Sievers
Yes, what really has changed is that in the past, we used foundries to kind of, be the overflow mechanism. So, that means we have the same technologies with foundries which we could do internally with what I explained earlier, we are changing this because now internally is largely dedicated to proprietary technologies and the foundries do the CMOS world.
So, that means the relationship to them goes much more into a partnership — long-term partnership model versus being just a tactical, kind of, overflow mechanism, which is also important, we’ve all seen how important suppliers, but also technology innovation is super important.
We — I think we talk publicly about the five nanometer design, which we are doing with TSMC as we speak, we just hit a major, major design win on this five nanometer part. So, that is important. What is also changing there is the regionalization of their factory footprints.
So, we are seeing predominantly in the U.S. and following now also in Europe, we see large customers putting a firm requirement on us that if they award us a big new design win, then we have to assure that the wafer manufacturing has to be local. So, if it is a U.S. company, then they want that we can assure that the wafer fab which will produce those parts is in the U.S. That is a consequence of the whole supply trouble from the past years and of the geopolitical turmoil.
In order to be able to comply with this, we are actually happy from a manufacturing footprint that we have three facilities in the U.S. and one in Europe. So, for our own stuff, we are actually quite well-positioned. And as we all see TSMC Global Foundries, Samsung, they all start to build both in Europe and in the U.S. So, I mean that is following, but we are quite happy to see this.
And then, of course, plays also in the whole discussion around the CHIPS Act in — both in Europe and the U.S., which is supporting those manufacturing strategies.
Chris Danely
Yes, that’s a nice segue, what does the CHIPS Act mean to NXP? Can you benefit? Are you putting in your application, apparently, there’s strings attached, what’s the — is there any impact?
Kurt Sievers
We would never, never do a strategy which is influenced or built on subsidy potential. We have supplier manufacturing strategies and then we are happily taking the opportunity to help them by subsidies. But we would have never done it because there is the chipset to there.
Now, since there is one in the U.S. and there is another one in Europe, which is exactly the places where we need more capacity, we will certainly have our applications in place and hope to benefit in the right way.
I mean, I just learned last night that I think the number I understood was that a quarter of the U.S. CHIPS Act money, a quarter of the $50 billion, $52 billion is actually going to be dedicated to mature nodes, which is a pretty good recite, I would say–
Chris Danely
I think one of your foundry partners might have had some influence.
Kurt Sievers
We’ve been speaking about this all along, because it was important to understand that a lot of the shortages and all of the drama here in the U.S. was actually due to mature nodes. So, I felt it was an important move to say that a solid portion of that money is also going to be dedicated to mature nodes. And again, that’s what NXP needs the next eight to 10 years.
Chris Danely
Yes. Now, for you guys, you talked about your non-cancelable orders, I guess on the foundry side, they’re trying to hit you up for some preliminary investments, non-cancelable orders, do you see this as a wave of the future or just a manifestation that this is such a powerful upturn, I’d appreciate your thoughts on what you see going forward?
Kurt Sievers
I mean I can be very open what we have, we have like $4 billion of supply or purchase obligations from our perspective from foundries, which sounds like a big number, but if you know that this is spread more or less evenly over five years, and we do in the quarter more than $3 billion revenue, then it’s not much at all. It’s actually it’s actually a pretty small number. And it’s more than out balanced by NCNR commitments which we have from our customers.
Chris Danely
Yes. So, it just kind of down the line, right?
Kurt Sievers
Philosophically, I think it is a good concept because especially in these industrial and automotive markets, design wins and the lifetime of design wins are very lengthy. So, there is enough visibility to enter into these kinds of agreements. And I think it just helps the whole supply chain. So in principle, I think it’s a good thing. And it goes a bit away from this call by mentality, which we which we might have had in the past.
Is it going to cover everything going forward? No, I definitely don’t think so. But for certain deals and certain specific single source components, I think it’s a good it’s a good move.
Chris Danely
Has it changed the capital intensity at all up or down these upfront payments? Or is it just the same part you’re just paying a little more earlier?
Kurt Sievers
It’s not even always that we have to pay something upfront. It’s more the obligation that we take it over time. So — but there was all sorts of constructions, I mean, that there is different deals with different foundries I guess by all of our competitors doing, everybody is doing a little bit his or her thing?
No, I don’t think overall it changes the capital intensity, but it hopefully forces people to be more thoughtful about what future demands are. And with that, what future investments we should actually take or not take.
Chris Danely
Another one that pops up is inflation and input. Hopefully, — my mic is going in and out. Hopefully, with — inflation, how is NXP dealing with increasing input costs? And then is this something that you’ve had to change your planning strategy going forward?
Kurt Sievers
Clearly, the growth in input cost, I haven’t seen this in 28 years. So, it’s a significant change. Let me give you a couple of perspectives on this. First of all, the policy we have very transparently taken right from the start is that we will pass on all of the increased input cost to our customers in such a way that it exactly protects our gross margin percentage, not abusing it to pet gross margin, but also not being the victim in the middle, which is losing profitability on this.
We’ve done this right from the start, I think Bill and I had a very sharp eye to be really precise on this and we are very open to our customers, this is how it works. And so far, we have found reasonable, I would say acceptance, I mean, raising prices is never easy, but I would say, so far so good.
I do not think this is behind us. At least in the technologies and process capacities, which we need. I dare to say it’s — it looks pretty obvious that our input costs will continue to go up next year. So, we are somewhere in the middle of it, but it continues, which also means that NXP will have to raise prices also next year. So, we are not at the end of this. And that has to do with the fact that foundries keep investing into these mature notes and there continues to be a supply and demand imbalance in these mature nodes.
The — this, by the way, is also sitting on inventory sizes, because I hear a lot of debates about growing inventory. It is important for everybody to realize that the good part of that is actually the inflation, which sits on the prices or the valuation of this of those inventories, that spooks sometimes the ratios which people are looking at.
And the same holds true for revenue growth. We last year, I think we talked about the number we had a small single-digit increase in pricing in — so calendar year 2021, which was a tailwind, if you will, to our revenue growth. We will let you know what it will be for this year. At the beginning of next year, it will be bigger. And that also explains some of the — where some people say how can you ship so much product. I mean, some of it is simply pricing.
And we don’t think in our world, again, I cannot speak for the total semi industry, I can talk for those two markets, auto and industrial, which are which are the majority of NXP. We don’t think that this is going to fall back down again, but we think we will lift those pricing levels now to a new plateau, which will be reached I don’t know, maybe sometime next year.
And then we will again enter into what we used to have in the past which is some small annual ASP erosion, but not a snap back to the levels that we came from.
Chris Danely
Okay. A couple more things related to China. You talked about your increasing use of foundries, lot of fear speculation that there could be a potential invasion of Taiwan by China. Is this something that NXP talks about — you talk about with the other semiconductor mucky-mucks and clearly you’ve diversified away from Taiwan somewhat, this is into the planning stage or anything?
Kurt Sievers
Well, a couple of perspectives. One is — and that plays into the earlier discussion, you’ve certainly also seen the reports about Chinese foundries starting to see unloading in the current environment, we really don’t use them much at all because historically, for automotive and industrial customers, which have very high quality, reliability, and safety requirements, we weren’t allowed to use them. So, we have to use with the bigger players. In the meantime, indeed, we also don’t necessarily intend to use them because of the geopolitical risk.
Now, when you speak about Taiwan, you speak about one big company, which of course we use. I am not in a position, Chris, to oversee the dramatic consequence. If they were cut off from a supply perspective to the rest of the world, I mean, that that would be just, I can only say catastrophic, in my view.
Certainly, the geographic diversification they are doing is which we talked about earlier, is a helpful step, but that’s only one step. And what more could be done or should be done, I also can’t oversee. I mean, that’s a big topic.
Chris Danely
Sure. Let’s talk about something a little easier, other geographies, like North America versus Europe, you guys are pretty much based in both. How do you see things sort of evolving there? I mean, clearly, there are some worries in Europe about energy costs and demand there. In North America, it seems like demand is holding up in most areas. So, I’d appreciate some input.
Kurt Sievers
Well, I’m not an economist, but I think it’s easy to see that Europe is in tough waters, given the given the energy crisis. So, if I had to compare, say China, Asia, Europe, and the U.S., then I would say probably Europe is in the most difficult situation.
China has actually taken significant incentivizing measures to for example, electric cars after the Shanghai shutdowns, COVID shutdowns, which seems to take traction, so we see positive dynamic in China. And the U.S. so far for what we are serving, which again is, of course, largely automotive, is holding up pretty strong. So, that’s why short-term, my biggest concern would be with Europe.
Now, just one other spooky thing. We only have one factory in Europe. So, the whole energy cost burden or a threat is comparatively super small for us. And that factory is in the Netherlands, it’s not in Germany. I point out Germany because Germany sees the biggest energy cost issue in Europe. So, we are comparatively to some competitors in a pretty good position from a supply cost perspective in Europe.
But so much more importantly is of course, how is the macro developing and what’s the demand and the consumer sentiment in Europe, which I think is most muted from all the regions in Europe.
Chris Danely
Okay, we do have some time left. This is supposed to be an interactive session, I apologize. If anybody has any questions from the audience I’m more than happy to survey otherwise I’m — find if I keep flapping my gums up here going once.
Unidentified Analyst
Hi. [indiscernible] taking share data, can you speak about, three years from now your [indiscernible].
Chris Danely
Question was on Qualcomm, says they’re taking share in ADAS.
Kurt Sievers
Yes, so I think Qualcomm does take share in infotainment. I’m not that sure about ADAS. But on the infotainment, clearly, they successfully bring the Snapdragon into high end infotainment and E-cockpit systems, which is not a space we’ve ever had in our plans.
I think it’s meaningful what they do. So, I would absolutely say that that that seems to take good traction, totally comprehended in our plans, which for e-cockpit infotainment is more the volume segments, where we absolutely keep our leadership position, which because it’s much more cost-sensitive, and doesn’t need that ultimate performance, which is going into the high end.
So, that’s why — again, full respect to what Qualcomm is doing. It doesn’t disturb us because that’s not an area that we wanted to grow into realistically ever.
Chris Danely
Any other questions from the audience? Going once.
Kurt Sievers
And on ADAS, maybe let me just add it, our growth in ADAS is in radar. We — I think we target like $1.2 billion in 2024, radar revenues, which has nothing to do with Qualcomm. I’m at least not aware of any ambition or any attempt from them to do radar. So, we have a very strong position there, which has to do with our leadership in 77 gigahertz systems and especially in CMOS based 77 gigahertz radar where we are clearly leading the pack.
Chris Danely
Young fella here, do you have a question?
Unidentified Analyst
Yes, sir. Thank you. So, you’ve done a great job over the last few years, really expanding the gross margins for the company? You’re getting up near the higher end of altitude over there. And as you think about 2020 [ph] to 2024, how do you think about the trade-off between growth and [indiscernible]? Or do you not even think about growth?
Kurt Sievers
I’ll let Bill answer, but the philosophical direction here is that we believe in the end, we have to deliver robust margins, but growth is trumping margin. So, we want to make sure that we can convince our investor base that we have a very sustainable, consistent growth path.
So, we want to grow faster than the industry, while delivering good margins, but I would not want to sacrifice our growth for gross margin.
Bill Betz
Yes, let me just say add to that when I joined the company about 10 years ago, our gross margins were about mid-40%s. And our investment, philosophy is — its very simple. Three questions we always ask ourselves, the first question is the market attractive checkmark, engineers, they always think every market’s attractive.
The second one is really important for us and that goes back to the concept of relative market share. We want to be one and a half, two times larger than our next peer and that’s a little bit more difficult conversation that we have with our engineers and our marketing and management.
But once they get past those two questions, the third question is this entitlement, this hurdle rate that we provide on the business, so you can imagine 10 years ago, that hurdle rate of new business was in the mid-40%s and above, okay, that’s attractive for us.
And then five years ago, it’s in the low 50%s and now our margins are, call it, between the 55%, 58%. So, all new business that we are investing in has to clear that hurdle. But it takes time with new product introductions to get above our current high end model today. So, I think we’re about a couple years away from that. But the products that we invest in, have life cycles of about 10 years, and design to revenue is probably three or four years from now. So, everything we’re investing in today will drive that future revenue and that margin profile in the years to come.
Chris Danely
Hey Bill just to follow on that, so are there opportunities that come up, that would be slightly below the gross margin profile, and potentially could offer much higher revenue growth? Where you say, no thanks, we’ll pass on that. Is it kind of that–
Bill Betz
No, no. Sorry about that. That’s general, obviously, there’s lots of business that we have relative high market share today, that’s good business; we’ll continue to invest in defend that business, as well as there’s opportunities that may not require the 16% R&D investment. And so therefore, you make it up on the operating margin, because it makes sense to go do that.
Chris Danely
Okay, to get to that broader question. So, I think you guys have the highest revenue growth versus peers this year and the downturn appears to have impacted your peers, more than you guys. I don’t want to mention any names [indiscernible], besides being 70%, and to the better end markets out there auto, industrial, what else has NXP done to better insulate yourself versus some peers versus the cycle?
Kurt Sievers
I believe we have been quite successful in our — how we organized our supply. We are playing out the design wins in our growth areas we invest today. Last November, we formulated a strategy of accelerated growth drivers across NXP, which, which were about $3 billion in revenue in 2021, in which we want to grow to $6 billion, so doubling in 2024 and that is really growing share.
I mean, this is about market share in radar, which I just mentioned here as an example. It’s just one of those. And that is playing out very nicely. And that’s really the result of design wins, which we’ve done four or five years ago. I mean, that’s not a quick action, it comes from those days.
We are very, very conscious about the macro. I just want to say that very loud and clear. I mean, we talk now a lot, probably quite bullish about how we see things in principle going. I mean, we are hypersensitive to not building any excess inventory in the market.
Half of our revenues are going through distribution, where we are manically reviewing, Bill and I every week, the distributions, the size of the distribution inventory, and it sticks at 1.6 months against a long-term target of 2.5. So, — and that’s for us one caution, which we hold against possible, excessive entry being built.
But in the end, I really think it is the mix of our business exposure. We have a favorable mix currently because where others have grown from the COVID consequences from working from home being for Chromebooks or for Bluetooth headsets and stuff, we haven’t participated there.
Our growth comes structurally from automotive and industrial, which was not a consequence of the COVID shutdowns. It’s a secular trend and that is what is actually playing into our benefit now.
Chris Danely
Do you think it’s possible we get through this cycle without any slowdown in auto and industrial?
Kurt Sievers
I don’t know Chris, I really don’t know. I think it would be over overdoing it here if we if we said we have the glass full and we know exactly it’s going to go that that or that way.
I do believe that both are driven by content increase and I think that content increase is unbroken. What inventory or other changes in the short-term do, I also can’t oversee. But I’m definitely sure that things like electric vehicle penetration which is doubling semi content and we are over proportionally benefiting from this, that’s not going to stop. I just see no way why EVs suddenly would go backwards.
Chris Danely
Certainly not in California, all EVs in 12 years.
Chris Danely
Great. I think we’re out of time. Thanks guys. thanks everyone.
Kurt Sievers
Thank you, Chris. Thank you.
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