I mean, maybe another number, Vivek, which puts this in perspective, and we gave you that transparency very intentionally. Last year, NXP as a company, did grow 1% in revenue. I also told you that our pricing last year was up by 8%. So that gives you a feel that we had a pretty significant volume decline last year from a supply perspective. So plus 1% revenue, plus 8% price gives you a 7% volume decline, which is clearly under-shipping, we think against end demand, but certainly against peers. I mean if you just take the same numbers from peers, then many of them who are now having a bit more of a hard time, they just shipped harder through the first — at least the first three quarters of last year. So under the curve in the end, it’s going to be the same thing.
It’s a matter of when did you ship and when do you need to reduce shipments. So that’s my answer. I don’t think other than that, there is a fundamental difference, Vivek. So I don’t want to claim we have a much better industrial business. I think we just had a more disciplined handle on it earlier.
Vivek Arya: Thank you, Kurt.
Operator: Thank you. Our next question comes from Stacy Rasgon with Bernstein Research. Your line is open.
Kurt Sievers: Stacy, are you there?
Operator: Stacy, your line is open.
Kurt Sievers: Operator, why don’t we go to the next caller, and we’ll circle around with Stacy?
Stacy Rasgon: Hello?
Kurt Sievers: I can hear you, Stacy. Good morning.
Stacy Rasgon: Yeah, that was — I don’t know what was going on there. Thanks for taking my questions. I had a question on the IoT trend. So it obviously bottomed in Q1 last year. I was wondering if you could parse out the recovery trends between the Consumer piece and the core Industrial. So we all know Consumer is getting a little better. Has the increase off the trough from a year ago been all Consumer or has the general purpose IoT started to recover as well? Like what are those trends across those two pieces?
Kurt Sievers: Yeah. Thanks, Stacy. That’s a fair question because, indeed, the two are trending differently. I’d say the IoT piece, which, by the way, is about 40% of that segment, has indeed gradually improved since the trough in the quarter one of last calendar year. Gradual means it’s getting better and better and better, but it’s still below the levels it had before the peak. So it’s way not there where it used to be while it is gradually improving. In our case, and I think we revealed that before, a very good portion of that is in China. So think about it as a largely distribution and largely China-oriented IoT business. But yes, so the trend starting from the bottom of Q1 last year, gradually improving and that’s what we continue — what we see to continue through the rest of this calendar year.
The core Industrial part indeed has taken a somewhat different shape. Think about it more like Automotive, which is now suffering a bit more from over-inventory, not much, and end market weakness. So I would say core Industrial relatively speaking, is a somewhat less good shape still, which has just face shifted to the IoT portion. So think about core Industrial a bit more similar to what we see in Automotive.
Stacy Rasgon: Got it. Thank you. My follow-up, I wanted to ask about lead times. Have they normalized to pre-COVID levels? And is that part of what’s enabling you to keep pricing flat? Do you have just like better control of pricing because you have a better controlled lead times? You’ve got a lot of competitors that are talking about pricing starting to come down now.
Kurt Sievers: So first part of the question, Stacy, absolute yes, lead times are just normal. I mean, forget about supply constraints, we have normal lead times back to the pre-COVID times, which helps a lot also relative to visibility because all of the double ordering and all of the need for NCNRs and all of these things, just consider them behind us more back to normal from that perspective. There is no real correlation of that to pricing, Stacy. The pricing, which I quoted to be about flat for this year, from our end is mainly a function of the input cost. We’ve been living in that world of sharply rising input costs over the past three years. And now it looks more normal. So any view and handle which we have on the input cost for this year is around zero, I would say.
And that’s also why we put that forward as the pricing for ’24 and we found acceptance and buy-in for that with our customers, Stacy, that’s not — it’s not really correlated with lead times. I understand your question if we had more of a commodity portfolio. Since we don’t have that, that correlation doesn’t really exist.
Stacy Rasgon: Got it. That’s helpful. Thank you guys.
Operator: Thank you. Our next question comes from Gary Mobley with Wells Fargo Securities. Your line is open.
Gary Mobley: Hey guys. Thanks for taking my question. Kurt, you called out some better-than-expected revenue on the Mobile side, and you appear to be poised for some pretty significant year-over-year growth in Mobile in the first half of fiscal year ’24. Is that a function of the Android market being last bad? Is it largely a function of maybe some traction in ultra-wideband or is it a function of content gains at your largest Mobile customer?
Kurt Sievers: So, Gary, in full transparency, most of all, it’s a function of the weak compares of last year. I just have to pull it out. I mean if you look at our Q1 of last year, it was horrendously low as a function of everything I explained in the last 10 minutes. So very, very clearly, mainly a function of weak compares. However, you mentioned at least one other thing, which is certainly the case. We clearly see that the Android inventory digestion is completely behind us. I would almost claim already in Q4, it was largely behind us. So in Android, we are shipping to end demand and you could also be somewhat hopeful about the Android market development going forward. So that is certainly a case. And our premium handset customer is also in, I would say, in a decent shape relative to volume development.
But that’s it. So again, it is very much a function of us trying to get as quickly as possible to true end demand and not suffering from excess inventory. I mean, that’s a good example of where that also helps you then on the other side of the equation to quickly come back into growth.
Gary Mobley: Thank you for that, Kurt. And Bill, you seem to be calling out 58% gross margin for fiscal year ’24, which is down only 50 basis points from the prior year. And that’s quite commendable considering what’s going on in the industry and whatnot. And it seems like you have a lot of gross margin headwinds from utilization to mix headwinds and whatnot. Maybe if you can give us some additional color in terms of the offsets to those headwinds and what’s allowing for this gross margin resiliency?
Bill Betz: Sure. Let me just use Q4 as an example in Q1 and then talk about some more of those levers, both tailwinds and headwinds. So in Q4, we did slightly better, as you know, 20 basis points. And really, that was driven by that distribution mix. It represented 61% of our sales, up from 57% in Q3. Now in Q1, we’re guiding down 70 basis points, primarily driven again by this lower distribution mix and lower — slightly lower fall-through on the sales. And because what we’re doing there is we’re seasonally adjusting distribution sales. So that will be down, but still probably better than a year ago from a mix standpoint. If you remember, distribution sales was about 49% in Q1, and I think we’ll be a bit better than that, which is then offsetting the underutilization.
If you recall, Q1 from a year ago, we were running in the low 80s and now we’re running in the low 70s. So you got some moving parts from a year-over-year compare, but from a quarter-over-quarter compare, it’s really driven by the mix. Now talking about tailwinds and headwinds, you’re right. Clearly, if we go below our current utilization levels of the low 70s, that becomes a headwind for us. We know that. We’re managing it to this level. And you can see for the last three quarters, we’ve been running our internal factories, which represent 40% of our internal source wafers. Another, obviously, headwind is obviously you have lower revenues, you have lower fall-through over your fixed cost structure. If we do see lower pricing, again, we’re — so far, we see that we’re able to keep this stable and flat from a year-over-year comparison standpoint.
But again, if we do have lower pricing, it’s our job to offset that with lower cost and productivity gains. Again, obviously, this is more longer term, the delay of any new product introductions could cause an impact from this quarter or that quarter based on timing. But the tailwinds we have, again, is higher revenues, if you think about over the 30% fixed cost structure we have, so that falls through. If we replenish our channel back to normal levels, again, Kurt talked about that $500 million. It’s a richer mix. And when we decide to do that, that becomes a tailwind. And then utilization, if we improve our 70% utilization internally, going back to more something in the mid-80s, that’s a tailwind. Another one is and something that we talked about is we plan to expand our distribution reach and mass market customers.
