We don’t think we’re doing as good as a job like some of our peers. So that’s something that we’re going to focus on and do better at and reach more customers. And clearly, we’re going to continue to execute on our productivity gains. And most importantly, longer term is to ramp up our new product introductions, which are accretive to the corporate gross margins today. So all in all, I think it’s how you manage the tailwinds and the headwinds quarter in and quarter out, and we’re going to do our best to maintain near the high end of the model as what I said at these types of revenue levels.
Gary Mobley: Helpful. Thanks, Bill.
Bill Betz: Thank you.
Operator: Thank you. Our next question comes from Francois Bouvignies with UBS. Your line is open.
Francois Bouvignies: Thank you very much. I have two, maybe a follow-up to the previous question. The first one is on Automotive. I mean you mentioned that you are basically managing the channel and under-shipping at the moment with a more clear picture in the second half of the year, if I have to summarize. Can you quantify maybe how much do you under-ship the demand maybe in the last two quarters? Because when I look at your Auto revenues, it was up 1% year-over-year. The production was — of cars was obviously much higher. I was wondering if you had any intelligence of how much you are under-shipping the Automotive right now, which basically would go into your way of a soft down cycle? But I was wondering if you have any quantification on that would be very helpful.
Kurt Sievers: Yeah. Hi, Francois. No exact quantification, but I guess a few pointers. It isn’t useful in my view, to look at one individual quarter. But I think now since the full calendar year ’23 is behind us, you can look at the full year where I think our Auto business did grow by 9%. I also said that the company has increased pricing by 8%. So let’s just assume for a minute that in Auto, we did also increase price in that order of magnitude, which basically puts you almost on a zero supply increase line last year in Automotive. So say zero growth in Automotive last year in supply and units. And that goes against what I would call super bullish Automotive fuel last year with, I think, in the end, the 9% SAAR increase to 90 million units, a rocking increase in electric cars.
I think the xEV cars last year, we’re growing by 45% year-over-year. So I mean all the good arguments, which we’ve discussed so often for a lot of content increase on top of the 9% SAAR. And we shipped zero. I mean that gives you a feel why we have a very strong view that we already significantly under-shipped through all of last year. But at the same time, I mean, it’s obvious we have over-shipped in the time before. It’s just that I believe we started very early with taking a handle on that and controlling that over-shipment and throttling it back. I think through all of last year, we have under-shipped in the distribution side of Automotive, which is 40% of the revenue. And I’d say we’ve take — we started to take more stringent action in the second quarter of last year to also control the over shipments in the direct side.
But that’s the one which is not completely done yet. So it’s very hard to qualify that Francois because you don’t know what size of inventory individual Tier 1 customers want to keep on the long run. And it’s also not a — it’s not a steady target. I mean we discussed with them very often. And these targets in terms of how many weeks of semiconductor inventory they want to keep. First of all, they are ranging widely between different Tier 1s. I could quote a range here between two weeks and 18 weeks. It’s really all over the place. And it also changes over time. As soon as they see reason to believe that their business is going to grow again, which means the OEM call offs they are getting, then they want to grow their inventory again. So that’s why it’s a bit of a moving target.
But I think for us, the synthesis is that we believe by the middle of calendar year ’24, we have that behind us.
Francois Bouvignies: That’s great answer. Thank you. And the second follow-up is on the pricing. I mean you said flattish pricing in ’24 and obviously, it seems to be like better than peers, and I understand the commodity part and also the input cost. If we look at the input cost, the electricity is coming down, I mean, obviously, from the peak you have the silicon wafers coming down. You have the mature nodes at the foundry level that is coming under pressure for many, many Tier 2, Tier 3 foundries. I was just wondering if the input cost is the main tracker of your pricing, how should we think about 2025 or through the year as we see input cost is also coming under pressure, if you see what I mean?
Kurt Sievers: Look, a couple of things, Francois. First of all, I’m glad we get well through ’24. I can’t get my head around ’25, that’s a little early, to be honest. Now at the same time, I think you put good pieces together relative to input costs, the one which you didn’t put up is the fact that the Tier 1 foundries are still a bit tight lipped when it is to cost decreases. And the biggest part of our input is Tier 1 foundries, not Tier 2 and Tier 3 foundries because we need these Tier 1 foundries for our Automotive and Core Industrial business. And there, unfortunately, the trends are not quite as ambitious as you mentioned them. Over time, Francois, I do believe, say, mid to longer term, that the industry will return to low single-digit ASP erosion year-over-year.
That is what we had in the pre-COVID period in the application-specific business like ours. And I think it is reasonable to assume that, that is also going to happen in the mid to longer-term future. However, this year is a transition year because the input is not yet the input cost and the inflationary environment is just not yet at that level as it used to be in the past. And very important, and I know it’s probably very clear, but I just want to reiterate that very clearly. This does not mean falling back to the levels which we had pre-COVID. What I’m saying is, from the levels which we have achieved now, we possibly have that in the mid to longer-term future, this very low single-digit ASP erosion per year, but we absolutely see no scenario that falls back to the levels of pre-COVID.
Gary Mobley: Great. Thank you very much.
Operator: Thank you. Our next question comes from Chris Danely with Citi. Your line is open.
Chris Danely: Hey, thanks guys. Just in terms of the things getting a little bit tougher over the last months, Kurt, is there any way to tell how much of this is, I guess, worsening demand versus a little more inventory than we thought? Any which way or the other on either side of that?
Kurt Sievers: Hey, good morning, Chris. Yeah, clearly, first of all, I confirm what you say. It got worse over the last 90 days or at least our view on what we are exposed to got worse. I would say the end demand in Auto has weakened. I mean the latest S&P data is now almost a percentage point down year-on-year in terms of SAAR, so that’s a little less than it was before. The xEV penetration is a little slowing. Again, it is still up, but it is a little slowing. So these are just gradual movements to the less positive side than what it was 90 days ago. But I think what is probably the somewhat bigger part in here is that we just got a better handle now, what is the remaining size of the excess inventory with our Tier 1 Automotive customers, which we are working down through the first half.
So I cannot pass in percentage, which one of the two is contributing how much. But I’d say it is in that, say, combination of Automotive, core Industrial over-inventory and at the same time a weakening macro.
Chris Danely: Great. And for my follow-up, I think — so Bill talked about disty being 49% of sales in Q1 of last year and then 61% of sales in Q4. Did I hear that right? Or is that wrong?
Bill Betz: That’s correct, Chris.
Chris Danely: So — yeah, okay. So my question is, your sales grew about, I guess, 10% from Q1 to Q4. And so that would mean your sales into disty grew a lot more than that. Why would that happen if the environment, like overall, at least outside [US] (ph) was a little more difficult?
Bill Betz: Basically it is matching to the sell-through.
Kurt Sievers: Chris, I think the background here is mainly that the exposure to distribution is larger in our Industrial and IoT business. And that is the one where we have seen the trough already in the first quarter of last year. So that gradual improvement throughout the quarters I discussed earlier, that shows up more on the distribution side because those are the segments which had that improvement. Where, in Automotive, distribution is only 40%, as I described, we have now the direct customer excess inventory digestion and distribution is a smaller part. So I think it is just a reflection of our exposure to the different end market segments.
