NXPI 10-K diff: FY 2023-12-31 → FY 2025-12-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+59 paragraphs −49 paragraphs ~49 changed
FY 2023-12-31 (earlier)
Item 1A. Risk FactorsRisks related to the semiconductor industry and the markets in which we participateThe semiconductor industry is highly cyclical.Historically, the relationship between supply and demand in the semiconductor industry has caused a high degree of cyclicality in the semiconductor market. Semiconductor supply is partly driven by manufacturing capacity, which in the past has demonstrated alternating periods of substantial capacity additions and periods in which no or limited capacity was added. As a general matter, semiconductor companies are more likely to add capacity in periods when current or expected future demand is strong and margins are, or are expected to be, high. Investments in new capacity can result in overcapacity, which can lead to a reduction in prices and margins. In response, companies typically limit further capacity additions, eventually causing the market to be relatively undersupplied. In addition, demand for semiconductors varies, which can exacerbate the effect of supply fluctuations. As a result of this cyclicality, the semiconductor industry has in the past experienced significant downturns, such as in 1997/1998, 2001/2002 and in 2008/2009, often in connection with, or in anticipation of, maturing life cycles of semiconductor companies’ products and declines in general economic conditions. These downturns have been characterized by diminishing demand for end-user products, high inventory levels, under-utilization of manufacturing capacity and accelerated erosion of average selling prices. The foregoing risks have historically had, and may continue to have, a material adverse effect on our business, financial condition and results of operations.
Significantly increased volatility and instability and unfavorable economic conditions may adversely affect our business.
It is difficult for us, our customers and suppliers to forecast demand trends. We may be unable to accurately predict the extent or duration of cycles or their effect on our financial condition or result of operations and can give no assurance as to the timing, extent or duration of the current or future business cycles generally, or specific to the markets in which we participate. In the first half of 2020, demand in the automotive market steeply declined as a result of manufacturing shutdowns by automotive OEMs due to the coronavirus pandemic, resulting in an unforeseen negative impact to our results of operations. Beginning in the third quarter of 2020, demand rebounded across all end markets more quickly than anticipated and accelerated through the third quarter of 2022, resulting in our inability to fully satisfy customer demand. In 2008 and 2009, Europe, the United States and international markets experienced increased volatility and instability related to the global financial crisis. In the event of a future decline in global economic conditions, our business, financial condition and results of operations could be materially adversely affected, and the resulting economic decline might disproportionately affect the markets in which we participate, further exacerbating a decline in our results of operations.
2 The contents of our website, our Corporate Sustainability Report, and our Sustainability Policy are referenced for general information only and are not incorporated by reference into, and do not form a part of, this Form 10-K.16The semiconductor industry is highly competitive. If we fail to introduce new technologies and products in a timely manner, this could adversely affect our business.The semiconductor industry is highly competitive and characterized by constant and rapid technological change, short product lifecycles, significant price erosion and evolving standards. Accordingly, the success of our business depends to a significant extent on our ability to develop new technologies and products that are ultimately successful in the market. The costs related to the research and development necessary to develop new technologies and products are significant and subject to increase due to current and expected inflation and any reduction of our research and development budget could harm our competitiveness. Meeting evolving industry requirements, including the increasing use of AI and machine learning technologies, and introducing new products to the market in a timely manner and at prices that are acceptable to our customers are significant factors in determining our competitiveness and success.
In addition, AI and machine learning are still in early stages, and the introduction and incorporation of AI technologies may result in unintended consequences or other new or expanded risks and liabilities. Such risks may include (i) adverse impacts from deficient, inaccurate, or biased AI recommendations, (ii) AI technologies the company develops and adopts may become obsolete earlier than planned, and there can be no assurance that the company will realize the desired or anticipated benefits, (iii) use of AI applications could increase the risk of cybersecurity incidents, such as through unintended or inadvertent transmission of proprietary or sensitive information, or (iv) any laws, regulations or industry standards adopted in response to the emergence of AI may be burdensome.
Commitments to develop new products must be made well in advance of any resulting sales, and technologies and standards may change during development, potentially rendering our products outdated or noncompetitive before their introduction. If we are unable to successfully develop new products, our revenue may decline substantially. Moreover, some of our competitors are well-established entities, are larger than us and have greater resources than we do. If these competitors increase the resources they devote to developing and marketing their products, we may not be able to compete effectively. Any consolidation among our competitors could enhance their product offerings and financial resources, further strengthening their competitive position. In addition, some of our competitors operate in narrow business areas relative to us, allowing them to concentrate their research and development efforts directly on products and services for those areas, which may give them a competitive advantage. As a result of these competitive pressures, we may face declining sales volumes or lower prevailing prices for our products, and we may not be able to reduce our total costs in line with this declining revenue. If any of these risks materialize, they could have a material adverse effect on our business, financial condition and results of operations.The demand for our products depends to a significant degree on the demand for our customers’ end products.The vast majority of our revenue is derived from sales to manufacturers in the automotive, industrial & IoT, mobile, and communication infrastructure. Demand in these markets fluctuates significantly, driven by consumer spending, consumer preferences, the development of new technologies and prevailing economic conditions. In addition, the specific products in which our semiconductors are incorporated may not be successful, or may experience price erosion or other competitive factors that affect the price manufacturers are willing to pay us. Such customers have in the past, and may in the future, vary order levels significantly from period to period, request postponements to scheduled delivery dates, modify their orders or reduce lead times. This is particularly common during periods of low demand. This can make managing our business difficult, as it limits the predictability of future revenue. It can also affect the accuracy of our financial forecasts. Furthermore, developing industry trends, such as customers’ use of outsourcing and revised supply chain models, including the direct purchase of semiconductor products by end product manufacturers instead of component manufacturers, may affect our revenue, costs, customer relations and working capital requirements.If customers do not purchase products made specifically for them, we may not be able to resell such products to other customers or may not be able to require the customers who have ordered these products to pay a cancellation fee. The foregoing risks could have a material adverse effect on our business, financial condition and results of operations.17The semiconductor industry is historically characterized by continued price erosion, especially after a product has been on the market.One of the results of the rapid innovation in the semiconductor industry is that pricing pressure, especially on products containing older technology, can be intense. Product life cycles are relatively short, and as a result, products tend to be replaced by more technologically advanced substitutes on a regular basis.
In turn, historically demand for older technology falls, causing the price at which such products can be sold to drop, in some cases precipitously. If this trend continues, in order to continue profitably supplying these products, we must reduce our production and procurement costs in line with the lower revenue we can expect to generate per unit. Usually, this must be accomplished through improvements in process technology, production efficiencies and efficient procurement pricing. If we cannot advance our process technologies or improve our efficiencies to a degree sufficient to maintain required margins, we will no longer be able to make a profit from the sale of these products. Moreover, we may not be able to cease production of such products, either due to contractual obligations or for customer relationship reasons, and as a result may be required to bear a loss on such products. We cannot guarantee that competition in our core product markets will not lead to price erosion, lower revenue or lower margins in the future. Should reductions in our manufacturing costs fail to keep pace with reductions in market prices for the products we sell, this could have a material adverse effect on our business, financial condition and results of operations.Risks related to our business operations
In many of the market segments in which we compete, we depend on winning selection processes, and failure to be selected could adversely affect our business in those market segments.
One of our business strategies is to participate in and win competitive bid selection processes to develop products for use in our customers’ equipment and products. These selection processes can be lengthy and require us to incur significant design and development expenditures, with no guarantee of winning a contract or generating revenue. Failure to win new design projects and delays in developing new products with anticipated technological advances or in commencing volume shipments of these products may have an adverse effect on our business. This risk is particularly pronounced in markets where there are only a few potential customers and in the automotive market, where, due to the longer design cycles involved, failure to win a design-in could prevent access to a customer for several years. Our failure to win a sufficient number of these bids could result in reduced revenue and hurt our competitive position in future selection processes because we may not be perceived as being a technology or industry leader, each of which could have a material adverse effect on our business, financial condition and results of operations.
Our global business operations expose us to international business risks that could adversely affect our business.If any of the following international business risks were to materialize or become worse, they could have a material adverse effect on our business, financial condition and results of operations:• negative economic developments in economies around the world and the instability of governments and international trade arrangements, such as the increase of barriers to international trade including the imposition of tariffs on imports by the United States and China, the withdrawal of the United Kingdom from the European Union, enhanced export controls on certain products and sanctions on certain industry sectors and parties and the sovereign debt crisis in certain European countries;
• social and political instability in a number of countries around the world, including continued hostilities in the Middle East and the armed conflict in Ukraine. The instability may have a negative effect on our business, financial condition and operations via our customers and global supply chain and volatility in energy prices and the financial markets;• potential terrorist attacks;
• epidemics and pandemics, such as the coronavirus outbreak, which may adversely affect our workforce, as well as our suppliers and customers;• geopolitical tension and disputes, as well as, resulting adverse changes in government policies, especially those affecting global trade and investment. Sustained geopolitical tensions, such as the current geopolitical tensions involving China and Taiwan, could lead to long-term changes in global trade and technology supply chains and decoupling of global trade networks;
18• volatility in foreign currency exchange rates, in particular with respect to the U.S. dollar, and transfer restrictions, in particular in mainland China; and
• threats that our operations or property could be subject to nationalization and expropriation.In addition, Russia’s invasion of Ukraine has led to sanctions, export controls and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military and economic actions and resulting sanctions could adversely affect the global economy and financial markets. Further escalation of the conflict between Ukraine and Russia could adversely impact the global supply chain, disrupt our operations, or negatively impact the demand for our products in our primary end markets. Any such disruption could result in an adverse impact to our financial results.Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never realize the full value of our intangible assets.
Goodwill and other identifiable intangible assets are recorded at fair value on the date of an acquisition. We review our goodwill and other intangible assets balance for impairment upon any indication of a potential impairment, and in the case of goodwill, at a minimum of once a year. Impairment may result from, among other things, a sustained decrease in share price, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services we sell, challenges to the validity of certain registered intellectual property, reduced sales of certain products incorporating intellectual property and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets. Any future determination of impairment of goodwill or other identifiable intangible assets could have a material adverse effect on our financial position, results of operations and stockholders’ equity.In difficult market conditions, our high fixed costs combined with low revenue may negatively affect our results of operations.
The semiconductor industry is characterized by high fixed costs and, notwithstanding our utilization of third-party manufacturing capacity, our production requirements are in part met by our own manufacturing facilities. In less favorable industry environments, like we faced in the first half of 2020, we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in demand for our products. During such periods, our fabrication plants could operate at lower loading level, while the fixed costs associated with the full capacity continue to be incurred, resulting in lower gross profit.We may from time to time restructure parts of our organization. Any such restructuring may impact customer satisfaction and the costs of implementation may be difficult to predict.We have previously executed restructuring initiatives and continue to assess, restructure and make changes to parts of the processes in our organization. If the global economy remains volatile, our revenues could decline and we may be forced to take cost savings steps that could result in additional charges and materially affect our business. The costs of implementing any restructurings, changes or cost savings steps may differ from our estimates and any negative impacts on our revenues or otherwise of such restructurings, changes or steps, such as situations in which customer satisfaction is negatively impacted, may be larger than originally estimated.
If we fail to extend or renegotiate our collective bargaining agreements and social plans with our labor unions as they expire from time to time, if regular or statutory consultation processes with employee representatives such as works councils fail or are delayed, or if our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed.We are a party to collective bargaining agreements and social plans with our labor unions. We are also required to consult with our employee representatives, such as works councils, on items such as restructurings, acquisitions and divestitures. Although we believe that our relations with our employees, employee representatives and unions are satisfactory, no assurance can be given that we will be able to successfully extend or renegotiate these agreements as they expire from time to time or to conclude the consultation processes in a timely and favorable way. The impact of future negotiations and consultation processes with employee
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representatives could have a material impact on our financial results. Also, if we fail to extend or renegotiate our labor agreements and social plans, if significant disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher ongoing labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business.Our working capital needs are difficult to predict.
Our working capital needs are difficult to predict and may fluctuate. The comparatively long period between the time at which we commence development of a product and the time at which it may be delivered to a customer leads to high inventory and work-in-progress levels. The volatility of our customers’ own businesses and the time required to manufacture products also make it difficult to manage inventory levels and require us to stockpile products across many different specifications.
Our business may be adversely affected by costs relating to product defects, and we could be faced with product liability and warranty claims.We make highly complex electronic components and, accordingly, there is a risk that defects may occur in any of our products. Such defects can give rise to significant costs, including expenses relating to recalling products, replacing defective items, writing down defective inventory and loss of potential sales. In addition, the occurrence of such defects may give rise to product liability and warranty claims, including liability for damages caused by such defects. If we release defective products into the market, our reputation could suffer and we may lose sales opportunities and incur liability for damages. Moreover, since the cost of replacing defective semiconductor devices is often much higher than the value of the devices themselves, we may at times face damage claims from customers in excess of the amounts they pay us for our products, including consequential damages. We also face exposure to potential liability resulting from the fact that our customers typically integrate the semiconductors we sell into numerous consumer products, which are then sold into the marketplace. We are exposed to product liability claims if our semiconductors or the consumer products based on them malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our products caused the damage in question, and such claims could result in significant costs and expenses relating to attorneys’ fees and damages. In addition, our customers may recall their products if they prove to be defective or make compensatory payments in accordance with industry or business practice or in order to maintain good customer relationships. If such a recall or payment is caused by a defect in one of our products, our customers may seek to recover all or a portion of their losses from us. If any of these risks materialize, our reputation would be harmed and there could be a material adverse effect on our business, financial condition and results of operations.We face risks related to security vulnerabilities in our products.
We and third parties regularly identify security vulnerabilities with respect to our products and services. The same holds for the operating systems and workloads that run on them and the components that interact with them. Components and Intellectual Property (IP) we purchase or license from third parties for use in our products, as well as industry-standard specifications we implement in our products, are also regularly subject to security vulnerabilities. As we have become a more data-centric company, our processors and other products are being used in additional and new and critical application areas that create new or increased cybersecurity, privacy or safety risks. This includes applications that gather and process large amounts of data, such as the cloud or Internet of Things, and critical infrastructure and automotive applications. We, our customers, and the users of our products do not always promptly learn of or have the ability to fully assess the magnitude or effects of a vulnerability, including the extent, if any, to which a vulnerability has been exploited. Additionally, new information can subsequently develop that may impact our assessment of a security vulnerability, including additional information learned as we develop and deploy mitigations or updates, become aware of additional variants and evaluate the competitiveness of existing and new products.
Security vulnerabilities and any limitations of, or adverse effects resulting from, mitigation techniques can adversely affect our results of operations, financial condition, sales, branding, customer relationships, share price, prospects, and reputation in a number of ways, any of which may be material.Adverse publicity about security vulnerabilities or mitigations could damage our reputation with customers or users and reduce demand for our products and services. These effects may be greater to the extent that competing products are not susceptible to the same vulnerabilities or if vulnerabilities can be more effectively mitigated in competing products. Moreover, third parties can release information regarding potential
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vulnerabilities of our products before mitigations are available. This, in turn, could lead to attempted or successful exploits, adversely affect our ability to introduce mitigations, or otherwise harm our business and reputation.Our business has suffered, and could in the future suffer, from manufacturing problems.
We manufacture, in our own factories as well as with third parties, our products using processes that are highly complex, require advanced and costly equipment and must continuously be modified to improve yields and performance. Difficulties in the production process can reduce yields or interrupt production, and, as a result of such problems, we may on occasion not be able to deliver products or do so in a timely or cost-effective or competitive manner. Such difficulties may include rationing, or other forced disruption of utility supplies such as electricity, gas or water by governments or regulators which could lead to disruptions of our operation resulting in high costs and global supply chain disruptions. As the complexity of both our products and our fabrication processes has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become more demanding. As is common in the semiconductor industry, we have in the past experienced manufacturing difficulties that have given rise to delays in delivery and quality control problems. There can be no assurance that any such occurrence in the future would not materially harm our results of operations. Further, we may suffer disruptions in our manufacturing operations, either due to production difficulties such as those described above or as a result of external factors beyond our control, such as the disruption to our Austin, Texas manufacturing facilities caused by the February 2021 winter storm. We may, in the future, experience manufacturing difficulties or permanent or temporary loss of manufacturing capacity due to the preceding or other risks. Any such event could have a material adverse effect on our business, financial condition and results of operations.
We rely on the timely supply of equipment and materials and could suffer if suppliers fail to meet their delivery obligations or raise prices. Certain equipment and materials needed in our manufacturing operations are only available from a limited number of suppliers.Our manufacturing operations depend on deliveries of equipment and materials in a timely manner and, in some cases, on a just-in-time basis. From time to time, suppliers may extend lead times, limit the amounts supplied to us or increase prices due to capacity constraints or other factors. Supply disruptions may also occur due to shortages in critical materials, such as silicon wafers or specialized chemicals. Because the equipment that we purchase is complex, it is frequently difficult or impossible for us to substitute one piece of equipment for another or replace one type of material with another. A failure by our suppliers to deliver our requirements could result in disruptions to our manufacturing operations. Our business, financial condition and results of operations could be harmed if we are unable to obtain adequate supplies of quality equipment or materials in a timely manner or if there are significant increases in the costs of equipment or materials due to current or expected inflation or other reasons and we are not able to increase the price of our products.
Failure of our third party suppliers to perform could adversely affect our results of operations.
We currently use outside suppliers for a portion of our manufacturing capacity. Outsourcing our production presents a number of risks. If our outside suppliers are unable to satisfy our demand, or experience manufacturing difficulties, delays or reduced yields, our results of operations and ability to satisfy customer demand could suffer. For example, as part of the industry-wide shortage of semiconductors during 2022 we could not obtain sufficient silicon wafers from our foundry partners to meet the demand for our products, causing us to not fully supply the demand for our products, and negatively affecting our results of operations. In addition, purchasing rather than manufacturing these products may adversely affect our gross profit margin if the purchase costs of these products are higher than our own manufacturing costs would have been or if we are not able to increase the price of our products to reflect the higher input costs. Prices for foundry products also vary depending on capacity utilization rates at our suppliers, quantities demanded, product technology and geometry. Furthermore, these outsourcing costs can vary materially from quarter to quarter and, in cases of industry shortages like we experienced in 2022, they can increase significantly, which may negatively affect our gross profit if we are not able to increase the price of our products. In addition, we have entered into long term supply agreements with certain key manufacturing partners. The failure of these suppliers to perform under these agreements or an unexpected reduction in demand for these products could result in a material adverse effect on our business, financial condition and results of operations.21Disruptions in our relationships with any one of our key customers could adversely affect our business.
A substantial portion of our revenue is derived from our top customers, including our distributors. We cannot guarantee that we will be able to generate similar levels of revenue from our largest customers in the future. If one or more of these customers substantially reduce their purchases from us, this could have a material adverse effect on our business, financial condition and results of operations.
We receive subsidies and grants in certain countries, and a reduction in the amount of governmental funding available to us or demands for repayment could increase our costs and affect our results of operations.As is the case with other large semiconductor companies, we receive subsidies and grants from governments in some countries. These programs are subject to periodic review by the relevant governments, and if any of these programs are curtailed or discontinued, this could have a material adverse effect on our business, financial condition and results of operations. As the availability of government funding is outside our control, we cannot guarantee that we will continue to benefit from government support or that sufficient alternative funding will be available if we lose such support. Moreover, if we terminate any activities or operations, including strategic alliances or joint ventures, we may face adverse actions from the local governmental agencies providing such subsidies to us. In such event that we don't meet the subsidies grant conditions, such government agencies could seek to recover such subsidies from us and they could cancel or reduce other subsidies we receive from them. This could have a material adverse effect on our business, financial condition and results of operations.Certain natural disasters, such as flooding, heavy precipitation, large earthquakes, volcanic eruptions or nuclear or other disasters, may negatively impact our business. Climate change may cause a rising number of natural disasters that could negatively affect our operations.Environmental and other disasters, such as flooding, heavy precipitation large earthquakes, volcanic eruptions or nuclear or other disasters, or a combination thereof may negatively impact our business. If flooding, heavy precipitation, a large earthquake, volcanic eruption or, extreme weather event or other natural disaster were to directly damage, destroy or disrupt our manufacturing facilities, it could disrupt our operations, delay new production and shipments of existing inventory or result in costly repairs, replacements or other costs, all of which would negatively impact our business. Even if our manufacturing facilities are not directly damaged, a large natural disaster may result in disruptions in distribution channels, supply chains, movement of goods and significant increases in the prices of raw materials used for our manufacturing process. For instance, the nuclear incident following the tsunami in Japan in 2011 impacted the supply chains of our customers and suppliers. Furthermore, any disaster affecting our customers (or their respective customers) may significantly negatively impact the demand for our products and our revenues. In addition, climate change could cause certain natural disasters, such as drought, wildfires, storms, flooding or rising sea levels, to occur more frequently or with greater intensity. Such natural disasters pose physical risks to our manufacturing, IT facilities or our suppliers’ facilities, or could disrupt the availability of water and utilities necessary for the operation of our manufacturing facilities or our suppliers’ facilities resulting in increased operating costs and business disruption, such as the disruption to our Austin, Texas manufacturing facilities caused by the February 2021 winter storm and weather-related disruption of water and utilities to these facilities. In addition, semiconductor manufacturing is a water-intensive process. Many of our manufacturing sites and those of our suppliers are located in semi–arid regions that may become increasingly vulnerable to prolonged droughts associated with evolving changes to the climate, which may lead to water scarcity. If we and our suppliers are not able to implement adequate water recycling and conservation measures or if the water scarcity in a particular region becomes acute and restricts the availability of water necessary for the operation of our manufacturing facilities or our suppliers’ facilities, our business may be significantly negatively impacted.
The impact of any such natural disasters depends on the specific geographic circumstances but could be significant, as some of our factories are located in areas with known earthquake fault zones, flood or storm risks, including but not limited to Singapore, Taiwan, Malaysia or Thailand. There is increasing concern that climate change is occurring that may cause a rising number of natural disasters with potentially dramatic effects on human activity. We cannot predict the economic impact, if any, of natural disasters or climate change.22Risks related to regulatory or legal challengesAs our business is global, we need to comply with laws and regulations in countries across the world.
We operate globally, with manufacturing, assembly and testing facilities in several continents, and we market our products globally.As a result, we are subject to environmental, data privacy, AI technologies, disclosure and reporting (including reporting of ESG-related data), labor and health and safety laws and regulations in each jurisdiction in which we operate. We are also required to obtain environmental permits and other authorizations or licenses from governmental authorities for certain of our operations. In the jurisdictions where we operate, we need to comply with differing standards and varying practices of regulatory, tax, judicial and administrative bodies.
No assurance can be given that we have been or will be at all times in complete compliance with the laws and regulations to which we are subject or that we have obtained or will obtain the permits and other authorizations or licenses that we need. If we violate or fail to comply with laws, regulations, permits and other authorizations or licenses, we could be fined or otherwise sanctioned by regulators. Furthermore, if one or more of our customers are sanctioned by regulators for non-compliance with laws and regulations, we could experience a decrease in demand for our products. For example, import and export regulations, such as the U.S. Export Administration Regulations administered by the U.S. Department of Commerce, are complex, change frequently, have generally become more stringent over time and have intensified in recent years. In October 2022, the U.S. imposed restrictions on the export of US-regulated products and technology to certain mainland Chinese technology companies and in October 2023, the Department of Commerce’s revisited these controls, proposing further refinements, and is moving toward final rule making. Our results of operations could be negatively impacted if we are required to suspend activities with certain customers or suppliers due to the current and future changes in regulations. In 2020, due to regulations imposed by the U.S. government, we ceased shipments of our products to Huawei pending approval of export licenses. Furthermore, global privacy legislation, enforcement, and policy activity, such as the EU General Data Privacy Regulation, are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. Even our inadvertent failure to comply with applicable privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. In addition, governments are increasingly imposing restrictions on foreign investment in semiconductor businesses and technology, such as the Dutch foreign investment control regime, that may limit our ability to execute strategic acquisitions, investments and alliances, any of which could have a material adverse effect on our business. Compliance with, or changes in the interpretation of, existing regulations, the adoption of new regulations, changes in the oversight of our activities by governments or standard bodies or rulings in court, regulatory, administrative or other proceedings relating to such regulations, among others, could have an adverse effect on our business and results of operations.Legal proceedings covering a range of matters are pending in various jurisdictions. Due to the uncertainty inherent in litigation, it is difficult to predict the final outcome. An adverse outcome might affect our results of operations.We and certain of our businesses are involved as plaintiffs or defendants in legal proceedings in various matters. For example, we are involved in legal proceedings claiming personal injuries to the children of former employees as a result of employees’ alleged exposure to chemicals used in semiconductor manufacturing clean room environments operated by us or our former parent companies, Philips and Motorola. Furthermore, because we continue to utilize these clean rooms, we may become subject to future claims alleging personal injury that may lead to additional liability. A judgment against us or material defense cost could harm our business, financial condition and results of operations.Our manufacturing operations are subject to environmental laws and regulations and initiatives to address climate change.We are subject to many environmental, health and safety laws and regulations in each jurisdiction in which we operate, which govern, among other things, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits from governmental authorities for certain of our operations. We cannot assure you that we have been or
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will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.As with other companies engaged in similar activities or that own or operate real property, we face inherent risks of environmental liability at our current and historical manufacturing facilities. Certain environmental laws impose strict, and in certain circumstances, joint and several liability on current or previous owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances as well as liability for related damages to natural resources. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. While we do not expect that any contamination currently known to us will have a material adverse effect on our business, we cannot assure you that this is the case or that we will not discover new facts or conditions or that environmental laws or the enforcement of such laws will not change such that our liabilities would be increased significantly. In addition, we could also be held liable for consequences arising out of human exposure to hazardous substances or other environmental damage. In summary, we cannot assure you that our costs of complying with current and future environmental and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, regulated materials, will not have a material adverse effect on our business, financial conditions and results of operations.
Public and private initiatives to address climate change may result in an increase in the cost of production due to increase in the prices of energy, introduction of energy or carbon tax or the purchase of carbon offsets. A variety of regulatory developments have been introduced that focus on restricting or managing the emission of carbon dioxide, methane and other greenhouse gases. Enterprises may need to purchase at higher costs new equipment or raw materials with lower carbon footprints. Environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur expenses. New materials that we are evaluating for use in our operations may become subject to regulation. These developments and further legislation that is likely to be enacted could affect our operations negatively. Changes in environmental regulations could increase our production and operational costs, which could adversely affect our results of operations and financial condition.Risks related to cybersecurity and IT systemsInterruptions in our information technology systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology applications, systems and networks to operate our business. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. Any significant interruption in our business applications, systems or networks, including but not limited to new system implementations, computer viruses, cyberattacks, security breaches, facility issues or energy blackouts could have a material adverse impact on our business, financial condition and results of operations.
Our computer systems and networks are subject to attempted security breaches and other cybersecurity incidents, which, if successful, could adversely impact our business.We have, from time to time, experienced cyber-attacks attempting to obtain access to and misuse our computer systems and networks. Such incidents could result in the misappropriation of our proprietary information and technology, the compromise of personal and confidential information of our employees, customers or suppliers or interrupt our business. There can be no assurance that a breach or incident will not have a material impact on our operations and financial results in the future. We believe that we have a robust cybersecurity program that is aligned to international cybersecurity frameworks, and that we leverage industry best practices across people, processes and technologies in an attempt to mitigate cybersecurity threats. However, we cannot always anticipate, detect, repel or implement fully effective preventative measures against all cybersecurity threats, particularly because the techniques used are increasingly sophisticated and constantly evolving.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and those of customers, suppliers, and some of those attempts may be successful. Such breaches could result in, for example, unauthorized access to, disclosure, misuse, loss, or
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destruction of our, our customer, or other third party data or systems, theft of sensitive or confidential data including personal information (including personal data about our employees, customers or other third parties) and intellectual property, system disruptions, and denial of service. In the event of such breaches, we, our customers or other third parties could be exposed to potential liability, litigation, and regulatory action, as well as the loss of existing or potential customers, damage to our reputation, and other financial loss. In addition, the cost and operational consequences of responding to breaches and implementing remediation measures could be significant. We have identified instances of employee misappropriation or theft of certain proprietary technology by individuals who are no longer employed by NXP. In some cases, such misappropriation may result in the violation of applicable export control regulations, which we report to relevant authorities as appropriate. As of the date of this filing we do not believe that any such misappropriation or theft known to us has resulted in a material adverse effect on our business or any material damage to us. However, there can be no assurance that these or other similar incidents will not have a material impact on our operations and financial results in the future. Accordingly, as these threats become increasingly sophisticated and continue to develop and grow, we are actively adapting our security measures and we continue to increase the amount we allocate to implement, maintain and/or update security systems to protect our infrastructure, intellectual property and data. As a global enterprise, we could also be impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, privacy and data protection. Additionally cyber-attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to us, our customers, or other third party operations or services, financial loss, potential liability, and damage our reputation and affect our relationships with our customers and suppliers.Risks related to intellectual property
We rely to a significant extent on proprietary intellectual property. We may not be able to protect this intellectual property against improper use by our competitors or others.Our success and future revenue growth depends, in part, on our ability to protect our proprietary technology, our products, our proprietary designs and fabrication processes, and other intellectual property against misappropriation by others. We primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our intellectual property. We may have difficulty obtaining patents and other intellectual property rights to protect our proprietary products, technology and intellectual property, and the patents and other intellectual property rights we receive may be insufficient to provide us with meaningful protection or commercial advantage. We may not obtain patent protection or secure other intellectual property rights in all the countries in which we operate, and under the laws of such countries, patents and other intellectual property rights may be or become unavailable or limited in scope. Even if new patents are issued, the claims allowed may not be sufficiently broad to effectively protect our proprietary technology, processes and other intellectual property. In addition, any of our existing patents, and any future patents issued to us may be challenged, invalidated or circumvented. The protection offered by intellectual property rights may be inadequate or weakened for reasons or circumstances that are out of our control. Further, our proprietary technology, designs and processes and other intellectual property may be vulnerable to disclosure or misappropriation by employees, contractors and other persons. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our proprietary technologies, our products, designs, processes and other intellectual property despite our efforts to protect our intellectual property. While we hold a significant number of patents, there can be no assurances that additional patents will be issued or that any rights granted under our patents will provide meaningful protection against misappropriation of our intellectual property. Our competitors may also be able to develop similar technology independently or design around our patents. We may not have or pursue patents or pending applications in all the countries in which we operate corresponding to all of our primary patents and applications. Even if patents are granted, effective enforcement in some countries may not be available. In particular, intellectual property rights are difficult to enforce in countries where the application and enforcement of the laws governing such rights may not have reached the same level as compared to other jurisdictions where we operate. Consequently, operating in some countries may subject us to an increased risk that unauthorized parties may attempt to copy or otherwise use our intellectual property or the intellectual property of our suppliers or other parties with whom we engage. There is no assurance that we will be able to protect our intellectual property rights or have adequate legal recourse in the event that we seek legal or judicial enforcement of our intellectual property rights under the laws of such countries. Any inability on our part to adequately protect our intellectual property may have a material adverse effect on our business, financial condition and results of operations.
25We may become party to intellectual property claims or litigation that could cause us to incur substantial costs, pay substantial damages or prohibit us from selling our products.We have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other intellectual property rights of others. Further, we may become involved in costly litigation brought against us regarding patents, copyrights, trademarks, trade secrets or other intellectual property rights. If any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. We cannot assure you that we will be able to obtain any or all of the necessary licenses on satisfactory terms, if at all. In the event that we cannot obtain or take the view that we don’t need a license, these parties may file lawsuits against us seeking damages (and potentially treble damages in the United States) or an injunction against the sale of our products that incorporate allegedly infringed intellectual property or against the operation of our business as presently conducted. Such lawsuits, if successful, could result in an increase in the costs of selling certain of our products, our having to partially or completely redesign our products or stop the sale of some of our products and could cause damage to our reputation. Any litigation could require significant financial and management resources regardless of the merits or outcome, and we cannot assure you that we would prevail in any litigation or that our intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. The award of damages, including material royalty payments, or the entry of an injunction against the manufacture and sale of some or all of our products, could affect our ability to compete or have a material adverse effect on our business, financial condition and results of operations.Risks related to human capital management
Loss of our key management and other personnel, or an inability to attract such management and other personnel, could affect our business.
We depend on our key management to run our business and on our senior engineers to develop new products and technologies. Our success will depend on the continued service of these individuals. The loss of any of our key personnel, whether due to departures, death, ill health or otherwise, could have a material adverse effect on our business. The market for qualified employees, including skilled engineers and other individuals with the required technical expertise to succeed in our business, is highly competitive and the loss of qualified employees or an inability to attract, retain and motivate the additional highly skilled employees required for the operation and expansion of our business could hinder our ability to successfully conduct research activities or develop marketable products. The foregoing risks could have a material adverse effect on our business.Risks related to our corporate structure
United States civil liabilities may not be enforceable against us.We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, certain members of our board and officers reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. laws.In the absence of an applicable treaty for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters to which the United States and the Netherlands are a party, a judgment obtained against the Company in the courts of the United States, whether or not predicated solely upon the U.S. federal securities laws, including a judgment predicated upon the civil liability provisions of the U.S. securities law or securities laws of any State or territory within the United States, will not be directly enforceable in the Netherlands.In order to obtain a judgment which is enforceable in the Netherlands, the claim must be relitigated before a competent court of the Netherlands; the relevant Netherlands court has discretion to attach such weight to a judgment of the courts of the United States as it deems appropriate; based on case law, the courts of the Netherlands may be expected to recognize and grant permission for enforcement of a judgment of a court of competent jurisdiction in the United States without re-examination or relitigation of the substantive matters adjudicated thereby, provided that (i) the relevant court in the United States had jurisdiction in the matter in
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accordance with standards which are generally accepted internationally; (ii) the proceedings before that court complied with principles of proper procedure; (iii) recognition and/or enforcement of that judgment does not conflict with the public policy of the Netherlands; and (iv) recognition and/or enforcement of that judgment is not irreconcilable with a decision of a Dutch court rendered between the same parties or with an earlier decision of a foreign court rendered between the same parties in a dispute that is about the same subject matter and that is based on the same cause, provided that earlier decision can be recognized in the Netherlands.Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors or officers who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters.
In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.
We are a Dutch public company with limited liability. The rights of our stockholders may be different from the rights of stockholders governed by the laws of U.S. jurisdictions.
We are a Dutch public company with limited liability (naamloze vennootschap) . Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of stockholders and the responsibilities of members of our board of directors may be different from the rights and obligations of stockholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our company, its stockholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a stockholder. See Part III, Item 10. Directors, Executive Officers and Corporate Governance .
Risks related to our indebtedness
Our debt obligations expose us to risks that could adversely affect our financial condition, which could adversely affect our results of operations.As of December 31, 2023, we had outstanding indebtedness with an aggregate principal amount of $11,250 million. Our substantial indebtedness could have a material adverse effect on our business by:• increasing our vulnerability to adverse economic, industry or competitive developments;
• requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;• exposing us to the risk of increased interest rates in the event we have borrowings under our $2,500 million revolving credit facility agreement (the “RCF Agreement”) because loans under the RCF Agreement bear interest at a variable rate;
• making it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of any our debt instruments, including restrictive covenants and borrowing conditions, could result in an event default under the indentures governing our notes and agreements governing other indebtedness;• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
• limiting our ability to obtain additional financial for working capital, capital expenditures, restructurings, product development, research and development, debt service requirements, investments, acquisitions and general corporate or other purposes; and• limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.Despite our level of indebtedness, we may still incur significantly more debt, which could further exacerbate the risks described above and affect our ability to service and repay our debt.27If we do not comply with the covenants in our debt agreements or fail to generate sufficient cash to service and repay our debt, it could adversely affect our operating results and our financial condition.The RCF Agreement and the indentures governing our unsecured notes or any other debt arrangements that we may have require us to comply with various covenants. If there were an event of default under any of our debt instruments that was not cured or waived, the holders of the defaulted debt could terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result in cross defaults under our other debt instruments. Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon an event of default.If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, restructure or refinance our indebtedness or reduce or delay capital expenditures, strategic acquisitions, investments and alliances, any of which could have a material adverse effect on our business. We cannot guarantee that we will be able to obtain enough capital to service our debt and fund our planned capital expenditures and business plan. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.The rating of our debt by major rating agencies may further improve or deteriorate, which could affect our additional borrowing capacity and financing costs.
The major debt rating agencies routinely evaluate our debt. These ratings are based on current information furnished to the ratings agencies by us and information obtained by the ratings agencies from other sources. An explanation of the significance of such rating may be obtained from such rating agency. There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect our market value and/or increase our corporate borrowing costs.
General risk factors
The price of our common stock historically has been volatile. The price of our common stock may fluctuate significantly.The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price for our common stock has varied between a high of $238.27 on December 15, 2023 and a low of $153.10 on January 5, 2023 in the twelve-month period ending on December 31, 2023. The market price of our common stock is likely to continue to be volatile and subject to significant price and volume fluctuations for many reasons, including in response to the risks described in this section, changes in our dividend or share repurchase policies, variations between our actual financial results or guidance and expectations of securities analysts or investors or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors, peer companies or suppliers regarding their own performance, or announcements by our competitors of significant contracts, strategic partnerships, joint ventures, joint marketing relationships or capital commitments, the passage of legislation or other regulatory developments affecting us or our industry, as well as industry conditions and general financial, economic and political instability. In the past, following periods of market volatility, shareholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
28We may have fluctuations in the amount and frequency of our stock repurchases.
The amount, timing, and execution of our stock repurchases may fluctuate based on our priorities for the use of cash for other purposes—such as investing in our business, including operational spending, capital spending, and acquisitions, and returning cash to our stockholders as dividend payments—and because of changes in cash flows, tax laws, and the market price of our common stock.
There can be no assurance that we will continue to declare cash dividends.Our board of directors has adopted a dividend policy pursuant to which we currently pay a cash dividend on our ordinary shares on a quarterly basis. The declaration and payment of any dividend is subject to the approval of our board and our dividend may be discontinued or reduced at any time. There can be no assurance that we will declare cash dividends in the future in any particular amounts, or at all.Future dividends, if any, and their timing and amount, may be affected by, among other factors: management’s views on potential future capital requirements for strategic transactions, including acquisitions; earnings levels; contractual restrictions; cash position and overall financial condition; and changes to our business model. The payment of cash dividends is restricted by applicable law, contractual restrictions and our corporate structure.
The impact of a negative performance of financial markets and demographic trends on our defined benefit pension liabilities and costs cannot be predicted.We sponsor defined benefit pension plans in a number of countries and a significant number of our employees are covered by our defined benefit pension plans. As of December 31, 2023, we had recognized a net accrued benefit liability of $392 million, representing the unfunded benefit obligations of our defined pension plans. The funding status and the liabilities and costs of maintaining these defined benefit pension plans may be impacted by financial market developments. For example, the accounting for such plans requires determining discount rates, expected rates of compensation and expected returns on plan assets, and any changes in these variables can have a significant impact on the projected benefit obligations and net periodic pension costs. Negative performance of the financial markets could also have a material impact on funding requirements and net periodic pension costs. Our defined benefit pension plans may also be subject to demographic trends. Accordingly, our costs to meet pension liabilities going forward may be significantly higher than they are today, which could have a material adverse impact on our financial condition.Future changes to Dutch, U.S. and other foreign tax laws could adversely affect us.
The European Commission, U.S. Congress and Treasury Department, the Organization for Economic Co-operation and Development (OECD), and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations, particularly payments made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the European Union, U.S. and other countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect us and our affiliates.Recent examples include the OECD’s initiatives to revise profit allocation and nexus rules to allocate more taxing rights to countries where companies have their markets and to establish a minimum tax rate on a global basis. As part of the OECD framework to implement a minimum tax rate, the EU has adopted a directive on ensuring a global minimum level of taxation for multinational companies, also known as Pillar 2, to become effective in 2024. The Dutch government has enacted new legislation in response to and based on such EU directive. It is anticipated that other countries will also introduce Pillar 2 legislation. These initiatives include recommendations and proposals that, if enacted in countries in which we and our affiliates do business, could adversely affect us and our affiliates. In addition, the Dutch government has enacted legislation to curtail exemptions on taxing share repurchases to become effective in 2025. If such legislation is not amended or repealed, this will lead to an additional out of pocket tax payment associated with future share repurchases. In addition, the U.S. may enact legislation that would allow a tax payer to deduct domestic R&D expenses in the year that they are expensed, which would adversely affect our tax rate, while beneficial for our cash position.
29We are exposed to a number of different tax uncertainties, which could have an impact on our results.We are required to pay taxes in multiple jurisdictions. We determine the taxes we are required to pay based on our interpretation of the applicable tax laws and regulations in the jurisdictions in which we operate. We may be subject to unfavorable changes in the respective tax laws and regulations to which we are subject. Tax controls, audits, change in controls and changes in tax laws or regulations or the interpretation given to them may expose us to negative tax consequences, including interest payments and potentially penalties. We have issued transfer-pricing directives in the areas of goods, services and financing, which are in accordance with OECD guidelines. As transfer pricing has a cross border effect, the focus of local tax authorities on implemented transfer pricing procedures in a country may have an impact on results in another country.Transfer pricing uncertainties can also result from disputes with local tax authorities about transfer pricing of internal deliveries of goods and services or related to financing, acquisitions and divestments, the use of tax credits and permanent establishments, and tax losses carried forward. These uncertainties may have a significant impact on local tax results. We also have various tax assets resulting from acquisitions. Tax assets can also result from the generation of tax losses in certain legal entities. Tax authorities may challenge these tax assets. In addition, the value of the tax assets resulting from tax losses carried forward depends on having sufficient taxable profits in the future.
FY 2025-12-31 (later)
Item 1A. Risk FactorsRisks related to the semiconductor industry and the markets in which we participate.The semiconductor industry is highly cyclical.Historically, the relationship between supply and demand in the semiconductor industry has caused a high degree of cyclicality in the semiconductor market. Semiconductor supply is partly driven by manufacturing capacity, which in the past has demonstrated alternating periods of substantial capacity additions and periods in which no or limited capacity was added. As a general matter, semiconductor companies are more likely to add capacity in periods when current or expected future demand is strong and margins are, or are expected to be, high. Investments in new capacity16can result in overcapacity, which can lead to a reduction in prices and margins. In response, companies typically limit further capacity additions, eventually causing the market to be relatively undersupplied. In addition, demand for semiconductors varies, which can exacerbate the effect of supply fluctuations. As a result of this cyclicality, the semiconductor industry has in the past experienced significant downturns, often in connection with, or in anticipation of, maturing life cycles of semiconductor companies’ products and declines in general economic conditions. These downturns have been characterized by diminishing demand for end-user products, high inventory levels, under-utilization of manufacturing capacity and accelerated erosion of average selling prices. The foregoing risks have historically had, and may continue to have, a material adverse effect on our business, financial condition and results of operations.
Significantly increased volatility and instability and unfavorable economic conditions may adversely affect our business.
It is difficult for us, our customers and suppliers, to forecast demand trends. We may be unable to accurately predict the extent or duration of cycles or their effect on our financial condition or result of operations and can give no assurance as to the timing, extent or duration of the current or future business cycles generally, or specific to the markets in which we participate. In 2008 and 2009, Europe, the United States and international markets experienced increased volatility and instability related to the global financial crisis. In the first half of 2020, demand in the automotive market steeply declined as a result of manufacturing shutdowns by automotive customers due to the coronavirus pandemic, resulting in an unforeseen negative impact to our results of operations. Beginning in the third quarter of 2020, demand rebounded across all end markets more quickly than anticipated and accelerated through the third quarter of 2022, resulting in our inability to fully satisfy customer demand. In the course of 2023, 2024 and 2025, our end markets experienced softening demand and uncertainty due to macroeconomic factors and geopolitical uncertainty. In the event of a future decline in global economic conditions, our business, financial condition and results of operations could be materially adversely affected, and the resulting economic decline might disproportionately affect the markets in which we participate, further exacerbating a decline in our results of operations.The semiconductor industry is highly competitive. If we fail to introduce new technologies and products in a timely manner, this could adversely affect our business.The semiconductor industry is highly competitive and characterized by constant and rapid technological change, short product lifecycles, significant price erosion and evolving standards. Accordingly, the success of our business depends to a significant extent on our ability to develop new technologies and products that are ultimately successful in the market. The costs related to the research and development necessary to develop new technologies and products are significant and subject to increase due to current and expected inflation and any reduction of our research and development budget could harm our competitiveness. Meeting evolving industry requirements, including the increasing use of AI and machine learning technologies (including the need to run complex AI-based applications on devices), and introducing new products to the market in a timely manner and at prices that are acceptable to our customers are significant factors in determining our competitiveness and success.
In addition, AI and machine learning are still in relatively early stages, and the introduction and incorporation of AI technologies may result in unintended consequences or other new or expanded risks and liabilities. Such risks may include (i) adverse impacts from deficient, inaccurate, or biased AI recommendations, (ii) AI technologies the company develops and adopts may not meet market requirements or become obsolete earlier than planned, and there can be no assurance that the company will realize the desired or anticipated benefits, (iii) use of AI applications could increase the risk of cybersecurity incidents, such as security vulnerabilities, including unintended or inadvertent transmission of proprietary or sensitive information and unauthorized access, or (iv) there is uncertainty in the legal and regulatory landscape for AI, which is not fully developed, and any laws, regulations or industry standards adopted in response to the emergence of AI may be burdensome, could entail significant costs, and may restrict or impede our ability to successfully use AI technologies efficiently and effectively.
Commitments to develop new products must be made well in advance of any resulting sales, and technologies and standards may change during development, potentially rendering our products outdated or noncompetitive before their introduction. If we are unable to successfully develop new products, our revenue may decline substantially. Moreover, some of our competitors are well-established entities, are larger than us and have greater resources than we do. If these competitors increase the resources they devote to developing and marketing their products, we may not be able to compete effectively. Any consolidation among our competitors could enhance their product offerings and financial resources, further strengthening their competitive position. In addition, some of our competitors operate in narrow business areas relative to us, allowing them to concentrate their research and development efforts directly
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on products and services for those areas, which may give them a competitive advantage. As a result of these competitive pressures, we may face declining sales volumes or lower prevailing prices for our products, and we may not be able to reduce our total costs in line with this declining revenue. If any of these risks materialize, they could have a material adverse effect on our business, financial condition and results of operations.The demand for our products depends to a significant degree on the demand for our customers’ end products.The vast majority of our revenue is derived from sales to manufacturers in the Automotive, Industrial & IoT, Mobile, and Communication Infrastructure end markets. Demand in these markets fluctuates significantly, driven by consumer spending, consumer preferences, the development of new technologies and prevailing economic conditions. In addition, the specific products in which our semiconductors are incorporated may not be successful or may experience price erosion or other competitive factors that affect the price manufacturers are willing to pay us. Such customers have in the past, and may in the future, vary order levels significantly from period to period, request postponements to scheduled delivery dates, modify their orders or reduce lead times. This is particularly common during periods of low demand. This can make managing our business difficult, as it limits the predictability of future revenue. It can also affect the accuracy of our financial forecasts. Furthermore, developing industry trends, such as customers’ use of outsourcing and revised supply chain models, including the direct purchase of semiconductor products by end product manufacturers instead of component manufacturers, may affect our revenue, costs, customer relations and working capital requirements.If customers do not purchase products made specifically for them, we may not be able to resell such products to other customers or may not be able to require the customers who have ordered these products to pay a cancellation fee. The foregoing risks could have a material adverse effect on our business, financial condition and results of operations.The semiconductor industry is historically characterized by continued price erosion, especially after a product has been on the market.One of the results of the rapid innovation in the semiconductor industry is that pricing pressure, especially on products containing older technology, can be intense.
If this trend continues, in order to continue profitably supplying these products, we must reduce our production and procurement costs in line with the lower revenue we can expect to generate per unit. Usually, this must be accomplished through improvements in process technology, production efficiencies and efficient procurement pricing. If we cannot advance our process technologies or improve our efficiencies to a degree sufficient to maintain required margins, the profit we make from the sale of these products will decline. Moreover, we may not be able to cease production of such products, either due to contractual obligations or for customer relationship reasons, and as a result may be required to bear reduced profitability, or even a loss on such products. We cannot guarantee that competition in our core product markets will not lead to price erosion, lower revenue or lower margins in the future. Should reductions in our manufacturing costs fail to keep pace with reductions in market prices for the products we sell, this could have a material adverse effect on our business, financial condition and results of operations.Risks related to our business operations
In many of the market segments in which we compete, we depend on winning selection processes, and failure to be selected could adversely affect our business in those market segments.
One of our business strategies is to participate in and win competitive bid selection processes to develop products for use in our customers’ equipment and products. These selection processes can be lengthy and require us to incur significant design and development expenditures, with no guarantee of winning a contract or generating revenue. Failure to win new design projects and delays in developing new products with anticipated technological advances or in commencing volume shipments of these products may have an adverse effect on our business. This risk is particularly pronounced in markets where there are only a few potential customers and in the automotive market, where, due to the longer design cycles involved, failure to win a design-in could prevent access to a customer for several years. Our failure to win a sufficient number of these bids could result in reduced revenue and hurt our competitive position in future selection processes because we may not be perceived as being a technology or industry leader, each of which could have a material adverse effect on our business, financial condition and results of operations.
Our global business operations expose us to international business risks that could adversely affect our business.18If any of the following international business risks were to materialize or become worse, they could have a material adverse effect on our business, financial condition and results of operations:• negative economic developments in economies around the world and the instability of governments and international trade arrangements, such as the increase of barriers to international trade including the imposition of new or increased tariffs on imports by the United States and China and other countries, enhanced export controls on certain products and sanctions on certain industry sectors and parties;
• social and political instability in a number of countries around the world, including continued hostilities in the Middle East and the armed conflict in Ukraine. The instability and any resulting sanctions, export controls or other penalties, may have a negative effect on our business, financial condition and operations via our customers and global supply chain and volatility in energy prices and the financial markets or negatively impact demand for our products;• potential terrorist attacks;
• epidemics and pandemics, such as the coronavirus outbreak, which may adversely affect our workforce, as well as our suppliers and customers;• geopolitical tension and disputes, as well as resulting adverse changes in government policies, especially those affecting global trade and investment, including trade protection and national security policies or placing companies on restricted entity lists. Sustained geopolitical tensions, such as the current geopolitical tensions involving China and Taiwan, could lead to long-term changes in global trade and technology supply chains and decoupling of global trade networks;• volatility in foreign currency exchange rates, in particular with respect to the U.S. dollar, and transfer restrictions, in particular in mainland China; and
• threats that our operations or property could be subject to nationalization and expropriation.Recently announced and future tariffs and other trade restrictions could materially and adversely affect our business, financial condition and results of operations.
In 2025, the U.S. government announced a series of tariffs, including tariffs targeting a broad range of imports and targeted tariffs on goods from specific countries and industries. In response, many countries imposed reciprocal tariffs and other trade restrictions on the United States. Although many of these tariffs, countermeasures and other trade restrictions have since been eased or paused, their initial announcements triggered considerable volatility in global markets and heightened economic uncertainty, and the global trade situation, particularly between the United States and China, continues to be highly dynamic. Further, throughout 2025 the U.S. government has initiated numerous investigations into products and industries under Section 232 of the Trade Expansion Act of 1962. For example, in April 2025, the Department of Commerce launched an investigation into the national security impacts of imported semiconductors and semiconductor manufacturing equipment. While the results of this investigation remain unknown, it is expected to result in additional tariffs and trade restrictions that may adversely impact our business. Similar investigations on other industries or products, including automotive, copper, steel, aluminum, critical minerals and aircraft, may also adversely impact the semiconductor industry and our business. These changes have, and similar changes in the future may continue to, increase the cost or reduce the availability of raw materials and supplies we need to operate, cause customers to advance, delay, reduce, or cancel orders, shift buying patterns, impact demand in our end markets, complicate demand forecasting for us and our customers, increase supply chain complexity and contribute to volatility, a broader economic slowdown or recession. Any of these impacts or changes could materially and adversely affect our business, financial condition and results of operations.Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never realize the full value of our intangible assets.
Goodwill and other identifiable intangible assets are recorded at fair value on the date of an acquisition. We review our goodwill and other intangible assets balance for impairment upon any indication of a potential impairment, and in the case of goodwill, at a minimum of once a year. Impairment may result from, among other things, a sustained decrease in share price, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services we sell, challenges to the validity of certain registered intellectual property, reduced sales of certain products incorporating intellectual property and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets. Any future determination of impairment of goodwill or other identifiable intangible assets could have a material adverse effect on our financial position, results of operations and stockholders’ equity.19In difficult market conditions, our high fixed costs combined with low revenue may negatively affect our results of operations.
The semiconductor industry is characterized by high fixed costs and, notwithstanding our utilization of third-party manufacturing capacity, our production requirements are in part met by our own manufacturing facilities. In less favorable industry environments, like we faced in the first half of 2020, we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in demand for our products. During such periods, our fabrication plants could operate at lower loading level, while the fixed costs associated with the full capacity continue to be incurred, resulting in lower gross profit.We may from time to time restructure parts of our organization. Any such restructuring may impact customer satisfaction, and the costs of implementation may be difficult to predict.We have previously executed restructuring initiatives and continue to assess, restructure and make changes to parts of the processes in our organization. If the global economy remains volatile, our revenues could decline and we may be forced to take cost savings steps that could result in additional charges and materially affect our business. The costs of implementing any restructurings, changes or cost savings steps may differ from our estimates and any negative impacts on our revenues or otherwise of such restructurings, changes or steps, such as situations in which customer satisfaction is negatively impacted, may be larger than originally estimated.
If we fail to extend or renegotiate our collective bargaining agreements and social plans with our labor unions as they expire from time to time, if regular or statutory consultation processes with employee representatives such as works councils fail or are delayed, or if our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed.We are a party to collective bargaining agreements and social plans with our labor unions. We are also required to consult with our employee representatives, such as works councils, on items such as restructurings, acquisitions and divestitures. Although we believe that our relations with our employees, employee representatives and unions are satisfactory, no assurance can be given that we will be able to successfully extend or renegotiate these agreements as they expire from time to time or to conclude the consultation processes in a timely and favorable way. The impact of future negotiations and consultation processes with employee representatives could have a material impact on our financial results. Also, if we fail to extend or renegotiate our labor agreements and social plans, if significant disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher ongoing labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business.Our working capital needs are difficult to predict.
Our working capital needs are difficult to predict and may fluctuate. The comparatively long period between the time at which we commence development of a product and the time at which it may be delivered to a customer leads to high inventory and work-in-progress levels. The volatility of our customers’ own businesses and the time required to manufacture products also make it difficult to manage inventory levels and require us to stockpile products across many different specifications.
Our business may be adversely affected by costs relating to product defects, and we could be faced with product liability and warranty claims.We make highly complex electronic components which in many cases are enabled by software and, accordingly, there is a risk that defects may occur in any of our products. Such defects can give rise to significant costs, including expenses relating to recalling products, releasing new software versions, replacing defective items, writing down defective inventory and loss of potential sales. In addition, the occurrence of such defects may give rise to product liability and warranty claims, including liability for damages caused by such defects. If we release defective products into the market, our reputation could suffer and we may lose sales opportunities and incur liability for damages. Moreover, since the cost of replacing defective semiconductor devices is often much higher than the value of the devices themselves, we may at times face damage claims from customers in excess of the amounts they pay us for our products, including consequential damages. We also face exposure to potential liability resulting from the fact that our customers typically integrate the semiconductors and the corresponding software we sell into numerous consumer products, which are then sold into the marketplace. We are exposed to product liability claims if our
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semiconductors or software, or the consumer products based on them malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our products caused the damage in question, and such claims could result in significant costs and expenses relating to attorneys’ fees and damages. In addition, our customers may recall their products if they prove to be defective or make compensatory payments in accordance with industry or business practice or in order to maintain good customer relationships. If such a recall or payment is caused by a defect in one of our products, semiconductor parts or software, our customers may seek to recover all or a portion of their losses from us. If any of these risks materialize, our reputation would be harmed and there could be a material adverse effect on our business, financial condition and results of operations.We face risks related to security vulnerabilities in our products.
We and third parties regularly identify security vulnerabilities with respect to our products and services. The same holds for the operating systems and workloads that run on them and the components that interact with them. Components and Intellectual Property (IP) we purchase or license from third parties for use in our products, as well as industry-standard specifications we implement in our products, are also regularly subject to security vulnerabilities. As we have become a more data-centric company, our processors and other products are being used in additional and new and critical application areas that create new or increased cybersecurity, privacy or safety risks. This includes applications that gather and process large amounts of data, such as the cloud or Internet of Things, and critical infrastructure and automotive applications. We, our customers, and the users of our products do not always promptly learn of or have the ability to fully assess the magnitude or effects of a vulnerability, including the extent, if any, to which a vulnerability has been exploited. Additionally, new information can subsequently develop that may impact our assessment of a security vulnerability, including additional information learned as we develop and deploy mitigations or updates, become aware of additional variants and evaluate the competitiveness of existing and new products.
Security vulnerabilities and any limitations of, or adverse effects resulting from, mitigation techniques can adversely affect our results of operations, financial condition, sales, branding, customer relationships, share price, prospects, and reputation in a number of ways, any of which may be material.Adverse publicity about security vulnerabilities or mitigations could damage our reputation with customers or users and reduce demand for our products and services. These effects may be greater to the extent that competing products are not susceptible to the same vulnerabilities or if vulnerabilities can be more effectively mitigated in competing products. Moreover, third parties can release information regarding potential vulnerabilities of our products before mitigations are available. This, in turn, could lead to attempted or successful exploits, adversely affect our ability to introduce mitigations, or otherwise harm our business and reputation.Our business has suffered, and could in the future suffer, from manufacturing problems.
We manufacture, in our own factories as well as with third parties, our products using processes that are highly complex, require advanced and costly equipment and must continuously be modified to improve yields and performance. Difficulties in the production process can reduce yields or interrupt production, and, as a result of such problems, we may on occasion not be able to deliver products or do so in a timely or cost-effective or competitive manner. Such difficulties may include rationing, or other forced disruption of utility supplies such as electricity, gas or water by governments or regulators which could lead to disruptions of our operation resulting in high costs and global supply chain disruptions. As the complexity of both our products and our fabrication processes has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become more demanding. As is common in the semiconductor industry, we have in the past experienced manufacturing difficulties that have given rise to delays in delivery and quality control problems. There can be no assurance that any such occurrence in the future would not materially harm our results of operations. Further, we may suffer disruptions in our manufacturing operations, either due to production difficulties such as those described above or as a result of external factors beyond our control, such as the disruption to our Austin, Texas manufacturing facilities caused by the February 2021 winter storm. We may, in the future, experience manufacturing difficulties or permanent or temporary loss of manufacturing capacity due to the preceding or other risks. Any such event could have a material adverse effect on our business, financial condition and results of operations.
We rely on the timely supply of equipment and materials and could suffer if suppliers fail to meet their delivery obligations or raise prices. Certain equipment and materials needed in our manufacturing operations are only available from a limited number of suppliers.21Our manufacturing operations depend on deliveries of equipment and materials in a timely manner and, in some cases, on a just-in-time basis. From time to time, suppliers may extend lead times, limit the amounts supplied to us or increase prices due to capacity constraints or other factors. Supply disruptions may also occur due to shortages in critical materials, such as silicon wafers or specialized chemicals. In addition, the imposition of tariffs or other trade restrictions may significantly increase the costs, and otherwise adversely impact the availability of certain raw materials and supplies needed for our manufacturing operations. Because the equipment that we purchase is complex, it is frequently difficult or impossible for us to substitute one piece of equipment for another or replace one type of material with another. A failure by our suppliers to deliver our requirements could result in disruptions to our manufacturing operations. Our business, financial condition and results of operations could be harmed if we are unable to obtain adequate supplies of quality equipment or materials in a timely manner or if there are significant increases in the costs of equipment or materials due to current or expected inflation, trade restrictions or other reasons and we are not able to increase the price of our products.
Failure of our third party suppliers to perform could adversely affect our results of operations.
We currently use outside suppliers for a portion of our manufacturing capacity. Outsourcing our production presents a number of risks. If our outside suppliers are unable to satisfy our demand, or experience manufacturing difficulties, delays or reduced yields, our results of operations and ability to satisfy customer demand could suffer. For example, as part of the industry-wide shortage of semiconductors during 2022 we could not obtain sufficient silicon wafers from our foundry partners to meet the demand for our products, causing us not to fully supply the demand for our products, and negatively affecting our results of operations. In addition, purchasing rather than manufacturing these products may adversely affect our gross profit margin if the purchase costs of these products are higher than our own manufacturing costs would have been or if we are not able to increase the price of our products to reflect the higher input costs. Prices for foundry products also vary depending on capacity utilization rates at our suppliers, quantities demanded, product technology and geometry. Furthermore, these outsourcing costs can vary materially from quarter to quarter and, in cases of industry shortages like we experienced in 2022, they can increase significantly, which may negatively affect our gross profit if we are not able to increase the price of our products. In addition, we have entered into long-term supply agreements with certain key manufacturing partners. The failure of these suppliers to perform under these agreements or an unexpected reduction in demand for these products could result in a material adverse effect on our business, financial condition and results of operations.Disruptions in our relationships with any one of our key customers could adversely affect our business.
A substantial portion of our revenue is derived from our top customers, including our distributors. We cannot guarantee that we will be able to generate similar levels of revenue from our largest customers in the future. If one or more of these customers substantially reduce their purchases from us, this could have a material adverse effect on our business, financial condition and results of operations.
We receive subsidies and grants in certain countries, and a reduction in the amount of governmental funding available to us or demands for repayment could increase our costs and affect our results of operations.As is the case with other large semiconductor companies, we receive subsidies and grants from governments in some countries. These programs are subject to periodic review by the relevant governments, and if any of these programs are curtailed or discontinued, this could have a material adverse effect on our business, financial condition and results of operations. As the availability of government funding is outside our control, we cannot guarantee that we will continue to benefit from government support or that sufficient alternative funding will be available if we lose such support. Moreover, if we terminate any activities or operations, including strategic alliances or joint ventures, we may face adverse actions from the local governmental agencies providing such subsidies to us. In such event that we don't meet the subsidies grant conditions, such government agencies could seek to recover such subsidies from us, and they could cancel or reduce other subsidies we receive from them. This could have a material adverse effect on our business, financial condition and results of operations.Certain natural disasters, such as flooding, heavy precipitation, large earthquakes, volcanic eruptions or nuclear or other disasters, may negatively impact our business. Climate change may cause a rising number of natural disasters that could negatively affect our operations.Environmental and other disasters, such as flooding, heavy precipitation large earthquakes, volcanic eruptions or nuclear or other disasters, or a combination thereof may negatively impact our business. If flooding, heavy precipitation, a large earthquake, volcanic eruption or, extreme weather event or other natural disaster were to22directly damage, destroy or disrupt our manufacturing facilities, it could disrupt our operations, delay new production and shipments of existing inventory or result in costly repairs, replacements or other costs, all of which would negatively impact our business. Even if our manufacturing facilities are not directly damaged, a large natural disaster may result in disruptions in distribution channels, supply chains, movement of goods and significant increases in the prices of raw materials used for our manufacturing process. For instance, the nuclear incident following the tsunami in Japan in 2011 impacted the supply chains of our customers and suppliers. Furthermore, any disaster affecting our customers (or their respective customers) may significantly negatively impact the demand for our products and our revenues. In addition, climate change could cause certain natural disasters, such as drought, wildfires, storms, flooding or rising sea levels, to occur more frequently or with greater intensity. Such natural disasters pose physical risks to our manufacturing, IT facilities or our suppliers’ facilities, or could disrupt the availability of water and utilities necessary for the operation of our manufacturing facilities or our suppliers’ facilities resulting in increased operating costs and business disruption, such as the disruption to our Austin, Texas manufacturing facilities caused by the February 2021 winter storm and weather-related disruption of water and utilities to these facilities. In addition, semiconductor manufacturing is a water-intensive process. Many of our manufacturing sites and those of our suppliers are located in semi–arid regions that may become increasingly vulnerable to prolonged droughts associated with evolving changes to the climate, which may lead to water scarcity. If we and our suppliers are not able to implement adequate water recycling and conservation measures or if the water scarcity in a particular region becomes acute and restricts the availability of water necessary for the operation of our manufacturing facilities or our suppliers’ facilities, our business may be significantly negatively impacted.
The impact of any such natural disasters depends on the specific geographic circumstances but could be significant, as some of our factories are located in areas with known earthquake fault zones, flood or storm risks, including but not limited to Singapore, Taiwan, Malaysia or Thailand. There is increasing concern that climate change is occurring that may cause a rising number of natural disasters with potentially dramatic effects on human activity. We cannot predict the economic impact, if any, of natural disasters or climate change.
We may engage in acquisitions and other strategic transactions or make investments, or be unable to consummate planned strategic acquisitions, which could adversely affect our results of operations.
We engage in acquisitions and other strategic transactions, including joint ventures, and make investments which we believe are important to the future of our business. We routinely acquire businesses and other assets, including patents, technology and other intangible assets, enter into joint ventures or other strategic transactions, and purchase minority equity interests in or make loans to companies. Achieving the anticipated benefits of business acquisitions depends in part upon our ability to integrate the businesses in an efficient and effective manner and achieve anticipated synergies, and we may not be successful in these efforts. Such integration is complex and time-consuming and involves significant challenges, including, among others: retaining key employees; integration of new employees, technology, products, operations, sales and distribution channels, business models, facilities and business systems; retaining customers and suppliers of the businesses; consolidating research and development operations; and consolidating corporate and administrative infrastructures. If we do not achieve the anticipated benefits of business acquisitions or other strategic activities, or if we are unable to consummate acquisitions or strategic investments that we consider important to the future of our business, our business and results of operations may be adversely affected and our growth strategy may not be successful.
Additionally, our acquisitions and other strategic investments may require approval by government agencies in applicable jurisdictions in which we operate. Certain agencies in the past have, and may in the future, deny the transaction or fail to approve in a timely manner, resulting in delays in closing and us not realizing the anticipated benefits of the proposed transactions.
We rely on joint ventures to meet our current and future manufacturing requirements. However, we often do not control these partnerships and joint ventures, and actions taken by any of our partners or the termination of these joint ventures could adversely affect our business.
As part of our hybrid manufacturing strategy, we have entered into a number of long-term strategic partnerships with other leading industry participants and may do so again in the future. For example, we currently participate in a joint venture with Taiwan Semiconductor Manufacturing Company Limited (“TSMC”) called Systems on Silicon Manufacturing Company Pte. Ltd. (“SSMC”) and have recently formed a joint venture with Vanguard International Semiconductor Corporation called VisionPower Semiconductor Manufacturing Company Pte. Ltd. (“VSMC”), and a joint venture with TSMC, Robert Bosch Gmbh and Infineon Technologies AG called European Semiconductor Manufacturing Company (“ESMC”) to create capability for our future manufacturing requirements. If any of our strategic partners in alliances we currently engage with or may engage with in the future were to encounter financial
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difficulties or change their business strategies, they may no longer be able or willing to participate in these groups or alliances, which could have a material adverse effect on our business, financial condition and results of operations. Under the terms of current or future alliances, we may have certain obligations, including funding obligations or take or pay obligations. If we do not achieve the anticipated benefits of these joint ventures, or if newly established joint ventures are not able to begin production in the expected timing or achieve expected efficiency and quality, our business and results of operations may be adversely affected.
Risks related to regulatory or legal challenges.As our business is global, we need to comply with laws and regulations in countries across the world.
We operate globally, with manufacturing, assembly and testing facilities in several continents, and we market our products globally.As a result, we are subject to environmental, data privacy, export controls and sanctions, AI technologies, cybersecurity, disclosure and reporting (including reporting of ESG-related data), labor and health and safety laws and regulations in each jurisdiction in which we operate. We are also required to obtain environmental permits and other authorizations or licenses from governmental authorities for certain of our operations. In the jurisdictions where we operate, we need to comply with differing standards and varying practices of regulatory, tax, customs, judicial and administrative bodies.
No assurance can be given that we have been or will be at all times in complete compliance with the laws and regulations to which we are subject or that we have obtained or will obtain the permits and other authorizations or licenses that we need. If we violate or fail to comply with laws, regulations, permits and other authorizations or licenses, we could be fined or otherwise sanctioned by regulators. Furthermore, if one or more of our customers are sanctioned by regulators for non-compliance with laws and regulations, we could experience a decrease in demand for our products. For example, import and export regulations, such as the U.S. Export Administration Regulations administered by the U.S. Department of Commerce and sanctions imposed by the European Union (EU) and other jurisdictions, are complex, change frequently, have generally become more stringent over time and have intensified in recent years. Our results of operations could be negatively impacted if we are required to suspend activities with certain customers or suppliers due to the current and future changes in regulations, including as a result of executive orders or policy changes pursued by the new U.S. administration. For example, in 2020, due to regulations imposed by the U.S. government, we ceased shipments of our products to Huawei pending approval of export licenses. Furthermore, global privacy legislation, enforcement, and policy activity, such as the EU General Data Privacy Regulation, are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. Even our inadvertent failure to comply with applicable privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. In addition, governments are increasingly imposing restrictions on cross-border investments in semiconductor businesses and technology, such as the Dutch foreign investment control regime and U.S. outbound investment rules, that may limit our ability to execute strategic acquisitions, investments and alliances, any of which could have a material adverse effect on our business. Compliance with, or changes in the interpretation of, existing regulations, the adoption of new regulations, changes in the oversight of our activities by governments or standard bodies or rulings in court, regulatory, administrative or other proceedings relating to such regulations, among others, could have an adverse effect on our business and results of operations.Legal proceedings covering a range of matters are pending in various jurisdictions. Due to the uncertainty inherent in litigation, it is difficult to predict the final outcome. An adverse outcome might affect our results of operations.We and certain of our businesses are involved as plaintiffs or defendants in legal proceedings in various matters. For example, in the past we have been involved in legal proceedings claiming personal injuries to the children of former employees as a result of employees’ alleged exposure to chemicals used in semiconductor manufacturing clean room environments operated by us or our former parent companies, Philips and Motorola. Furthermore, because we continue to utilize these clean rooms, we may become subject to future claims alleging personal injury that may lead to additional liability. A judgment against us in these or other legal proceedings or material defense cost could harm our business, financial condition and results of operations.Our manufacturing operations are subject to environmental laws and regulations and initiatives to address climate change.24
We are subject to many environmental, health and safety laws and regulations in each jurisdiction in which we operate, which govern, among other things, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits from governmental authorities for certain of our operations. We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.As with other companies engaged in similar activities or that own or operate real property, we face inherent risks of environmental liability at our current and historical manufacturing facilities. Certain environmental laws impose strict, and in certain circumstances, joint and several liability on current or previous owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances as well as liability for related damages to natural resources. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. While we do not expect that any contamination currently known to us will have a material adverse effect on our business, we cannot assure you that this is the case or that we will not discover new facts or conditions or that environmental laws or the enforcement of such laws will not change such that our liabilities would be increased significantly. In addition, we could also be held liable for consequences arising out of human exposure to hazardous substances or other environmental damage. In summary, we cannot assure you that our costs of complying with current and future environmental and health and safety laws, or our liabilities arising from past or future releases of, or exposures to, regulated materials, will not have a material adverse effect on our business, financial conditions and results of operations.
Public and private initiatives to address climate change may result in an increase in the cost of production due to increase in the prices of energy, introduction of energy or carbon tax or the purchase of carbon offsets. A variety of regulatory developments have been introduced that focus on restricting or managing the emission of carbon dioxide, methane and other greenhouse gases. Enterprises may need to purchase at higher costs new equipment or raw materials with lower carbon footprints. Environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify product designs, or incur expenses. New materials that we are evaluating for use in our operations may become subject to regulation. These developments and further legislation that is likely to be enacted could affect our operations negatively. Changes in environmental regulations could increase our production and operational costs, which could adversely affect our results of operations and financial condition.Risks related to cybersecurity and IT systems.Interruptions in our information technology systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology applications, systems and networks to operate our business. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. Any significant interruption in our business applications, systems or networks, including but not limited to new system implementations, computer viruses, cyberattacks, security breaches, facility issues or energy blackouts could have a material adverse impact on our business, financial condition and results of operations.
Our computer systems and networks are subject to attempted security breaches and other cybersecurity incidents, which, if successful, could adversely impact our business.We have, from time to time, experienced cyber-attacks attempting to obtain access to and misuse our computer systems and networks. Such incidents could result in the misappropriation of our proprietary information and technology, the compromise of personal and confidential information of our employees, customers or suppliers or interrupt our business. There can be no assurance that a breach or incident will not have a material impact on our operations and financial results in the future. We believe that we have a robust cybersecurity program that is aligned to international cybersecurity frameworks, and that we leverage industry best practices across people, processes and technologies in an attempt to mitigate cybersecurity threats. However, we cannot always anticipate, detect, repel or implement fully effective preventative measures against all cybersecurity threats, particularly because the techniques used are increasingly sophisticated and constantly evolving. For example, as AI continues to evolve, cyber attackers could also use AI to develop malicious code and increasingly sophisticated phishing attempts.
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In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error. Computer hackers and others routinely attempt to breach the security of technology products, services, and systems, and those of customers, suppliers, and some of those attempts may be successful. Such breaches could result in, for example, unauthorized access to, disclosure, misuse, loss, or destruction of our, our customer, or other third party data or systems, theft of sensitive or confidential data including personal information (including personal data about our employees, customers or other third parties) and intellectual property, system disruptions, and denial of service. In the event of such breaches, we, our customers or other third parties could be exposed to potential liability, litigation, and regulatory action, as well as the loss of existing or potential customers, damage to our reputation, and other financial loss. In addition, the cost and operational consequences of responding to breaches and implementing remediation measures could be significant. We have identified instances of employee misappropriation or theft of certain proprietary technology by individuals who are no longer employed by NXP. In some cases, such misappropriation may result in the violation of applicable export control regulations, which we report to relevant authorities as appropriate. As of the date of this filing, we do not believe that any such misappropriation or theft known to us has resulted in a material adverse effect on our business or any material damage to us. However, there can be no assurance that these or other similar incidents will not have a material impact on our operations and financial results in the future. Accordingly, as these threats become increasingly sophisticated and continue to develop and grow, we are actively adapting our security measures and we continue to increase the amount we allocate to implement, maintain and/or update security systems to protect our infrastructure, intellectual property and data. As a global enterprise, we could also be impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, privacy and data protection. Additionally cyber-attacks or other catastrophic events resulting in disruptions to or failures in power, information technology, communication systems or other critical infrastructure could result in interruptions or delays to us, our customers, or other third party operations or services, financial loss, potential liability, and damage our reputation and affect our relationships with our customers and suppliers.Risks related to intellectual property
We rely to a significant extent on proprietary intellectual property. We may not be able to protect this intellectual property against improper use by our competitors or others.Our success and future revenue growth depends, in part, on our ability to protect our proprietary technology, our products, our proprietary designs and fabrication processes, and other intellectual property against misappropriation by others. We primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect our intellectual property. We may have difficulty obtaining patents and other intellectual property rights to protect our proprietary products, technology and intellectual property, and the patents and other intellectual property rights we receive may be insufficient to provide us with meaningful protection or commercial advantage. We may not obtain patent protection or secure other intellectual property rights in all the countries in which we operate, and under the laws of such countries, patents and other intellectual property rights may be or become unavailable or limited in scope. Even if new patents are issued, the claims allowed may not be sufficiently broad to effectively protect our proprietary technology, processes and other intellectual property. In addition, any of our existing patents, and any future patents issued to us may be challenged, invalidated or circumvented. The protection offered by intellectual property rights may be inadequate or weakened for reasons or circumstances that are out of our control. Further, our proprietary technology, designs and processes and other intellectual property may be vulnerable to disclosure or misappropriation by employees, contractors and other persons. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose our proprietary technologies, our products, designs, processes and other intellectual property despite our efforts to protect our intellectual property. While we hold a significant number of patents, there can be no assurances that additional patents will be issued or that any rights granted under our patents will provide meaningful protection against misappropriation of our intellectual property. Our competitors may also be able to develop similar technology independently or design around our patents. We may not have or pursue patents or pending applications in all the countries in which we operate corresponding to all of our primary patents and applications. Even if patents are granted, effective enforcement in some countries may not be available. In particular, intellectual property rights are difficult to enforce in countries where the application and enforcement of the laws governing such rights may not have reached the same level as compared to other jurisdictions where we operate. Consequently, operating in some countries may subject us to an increased risk that unauthorized parties may attempt to copy or otherwise use our intellectual property or the intellectual property of our suppliers or other parties with whom we engage. There is no assurance that we will be able to protect our intellectual property rights or have adequate legal recourse in the event
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that we seek legal or judicial enforcement of our intellectual property rights under the laws of such countries. Any inability on our part to adequately protect our intellectual property may have a material adverse effect on our business, financial condition and results of operations. Finally, the intellectual property ownership and license rights, including copyrights and patents, surrounding AI technologies, which we are and may in the future continue to build into our products, have not been fully addressed by U.S. or foreign courts, laws or regulations, and the use of AI in the development of our products and services could result in our loss of, or failure to obtain, intellectual property rights, as well as subject us to risks related to intellectual property infringement or misappropriation.We may become party to intellectual property claims or litigation that could cause us to incur substantial costs, pay substantial damages or prohibit us from selling our products.We have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other intellectual property rights of others. Further, we may become involved in costly litigation brought against us regarding patents, copyrights, trademarks, trade secrets or other intellectual property rights. If any such claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. We cannot assure you that we will be able to obtain any or all of the necessary licenses on satisfactory terms, if at all. In the event that we cannot obtain or take the view that we don’t need a license, these parties may file lawsuits against us seeking damages (and potentially treble damages in the United States) or an injunction against the sale of our products that incorporate allegedly infringed intellectual property or against the operation of our business as presently conducted. Such lawsuits, if successful, could result in an increase in the costs of selling certain of our products, our having to partially or completely redesign our products or stop the sale of some of our products and could cause damage to our reputation. Any litigation could require significant financial and management resources regardless of the merits or outcome, and we cannot assure you that we would prevail in any litigation or that our intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. Additionally, and in part due to ongoing uncertainties in the legal framework around AI, our use of AI technologies for productivity and in our products and services may expose us to copyright infringement or other intellectual property misappropriation claims. The award of damages, including material royalty payments, or the entry of an injunction against the manufacture and sale of some or all of our products, could affect our ability to compete or have a material adverse effect on our business, financial condition and results of operations.Risks related to human capital management
Loss of our key management and other personnel, or an inability to attract such management and other personnel, could affect our business.
We depend on our key management to run our business and on our senior engineers to develop new products and technologies. Our success will depend on the continued service of these individuals. The loss of any of our key personnel, whether due to departures, death, ill health or otherwise, could have a material adverse effect on our business. The market for qualified employees, including skilled engineers and other individuals with the required technical expertise to succeed in our business, is highly competitive and the loss of qualified employees or an inability to attract, retain and motivate the additional highly skilled employees required for the operation and expansion of our business could hinder our ability to successfully conduct research activities or develop marketable products. The foregoing risks could have a material adverse effect on our business.Effective October 28, 2025, Kurt Sievers voluntarily retired as our CEO and executive director and Rafael Sotomayor succeeded Mr. Sievers as President and CEO and temporary executive director of the Company. Any significant leadership change involves inherent risk, including potential disruptions to our operations or relationships with customers, suppliers and key employees, and can be inherently difficult to implement. If our CEO transition is not successful for any reason, it could have an adverse impact on our business.Risks related to our corporate structure
United States civil liabilities may not be enforceable against us.We are incorporated under the laws of the Netherlands and substantial portions of our assets are located outside of the United States. In addition, certain members of our board and officers reside outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such other persons
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residing outside the United States, or to enforce outside the United States judgments obtained against such persons in U.S. courts in any action. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. laws.In the absence of an applicable treaty for the mutual recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters to which the United States and the Netherlands are a party, a judgment obtained against the Company in the courts of the United States, whether or not predicated solely upon the U.S. federal securities laws, including a judgment predicated upon the civil liability provisions of the U.S. securities law or securities laws of any State or territory within the United States, will not be directly enforceable in the Netherlands.In order to obtain a judgment which is enforceable in the Netherlands, the claim must be relitigated before a competent court of the Netherlands; the relevant Netherlands court has discretion to attach such weight to a judgment of the courts of the United States as it deems appropriate; based on case law, the courts of the Netherlands may be expected to recognize and grant permission for enforcement of a judgment of a court of competent jurisdiction in the United States without re-examination or relitigation of the substantive matters adjudicated thereby, provided that (i) the relevant court in the United States had jurisdiction in the matter in accordance with standards which are generally accepted internationally; (ii) the proceedings before that court complied with principles of proper procedure; (iii) recognition and/or enforcement of that judgment does not conflict with the public policy of the Netherlands; and (iv) recognition and/or enforcement of that judgment is not irreconcilable with a decision of a Dutch court rendered between the same parties or with an earlier decision of a foreign court rendered between the same parties in a dispute that is about the same subject matter and that is based on the same cause, provided that earlier decision can be recognized in the Netherlands.Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or members of our board of directors or officers who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters.
In addition, there is doubt as to whether a Dutch court would impose civil liability on us, the members of our board of directors, our officers or certain experts named herein in an original action predicated solely upon the U.S. laws brought in a court of competent jurisdiction in the Netherlands against us or such members, officers or experts, respectively.
We are a Dutch public company with limited liability. The rights of our stockholders may be different from the rights of stockholders governed by the laws of U.S. jurisdictions.
We are a Dutch public company with limited liability (naamloze vennootschap) . Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of stockholders and the responsibilities of members of our board of directors may be different from the rights and obligations of stockholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our board of directors is required by Dutch law to consider the interests of our company, its stockholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a stockholder. See Part III, Item 10. Directors, Executive Officers and Corporate Governance .
Risks related to our indebtedness
Our debt obligations expose us to risks that could adversely affect our financial condition, which could adversely affect our results of operations.As of December 31, 2025, we had outstanding indebtedness with an aggregate principal amount of $12,290 million. Our substantial indebtedness could have a material adverse effect on our business by:• increasing our vulnerability to adverse economic, industry or competitive developments;
• requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;• exposing us to the risk of increased interest rates in the event we have borrowings under our $2,500 million revolving credit facility agreement (the “RCF Agreement”), which was restated to $3,000 million as per February 6, 2026, because loans under the RCF Agreement may bear interest at a variable rate;
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• making it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event default under the indentures governing our notes and agreements governing other indebtedness;• restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
• limiting our ability to obtain additional financial for working capital, capital expenditures, restructurings, product development, research and development, debt service requirements, investments, acquisitions and general corporate or other purposes; and• limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.Despite our level of indebtedness, we may still incur significantly more debt, which could further exacerbate the risks described above and affect our ability to service and repay our debt.If we do not comply with the covenants in our debt agreements or fail to generate sufficient cash to service and repay our debt, it could adversely affect our operating results and our financial condition.The RCF Agreement, European Investment Bank (EIB) loan facilities and the indentures governing our unsecured notes or any other debt arrangements that we may have require us to comply with various covenants. If there were an event of default under any of our debt instruments that was not cured or waived, the holders of the defaulted debt could terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately, which in turn could result in cross defaults under our other debt instruments. Our assets and cash flow may not be sufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon an event of default.If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, restructure or refinance our indebtedness or reduce or delay capital expenditures, strategic acquisitions, investments and alliances, any of which could have a material adverse effect on our business. We cannot guarantee that we will be able to obtain enough capital to service our debt and fund our planned capital expenditures and business plan. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.29The rating of our debt by major rating agencies may further improve or deteriorate, which could affect our additional borrowing capacity and financing costs.
The major debt rating agencies routinely evaluate our debt. These ratings are based on current information furnished to the ratings agencies by us and information obtained by the ratings agencies from other sources. An explanation of the significance of such rating may be obtained from such rating agency. There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, could affect our market value and/or increase our corporate borrowing costs.
General risk factors
The price of our common stock historically has been volatile. The price of our common stock may fluctuate significantly.The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market closing price for our common stock varied between a high of $245.86 on February 20, 2025, and a low of $153.50 on April 8, 2025, in the twelve-month period ending on December 31, 2025. The market price of our common stock is likely to continue to be volatile and subject to significant price and volume fluctuations for many reasons, including in response to the risks described in this section, changes in our dividend or share repurchase policies, variations between our actual financial results or guidance and expectations of securities analysts or investors or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors, peer companies or suppliers regarding their own performance, or announcements by our competitors of significant contracts, strategic partnerships, joint ventures, joint marketing relationships or capital commitments, the passage of legislation or other regulatory developments affecting us or our industry, as well as industry conditions and general financial, economic and political instability. In the past, following periods of market volatility, shareholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.We may have fluctuations in the amount and frequency of our stock repurchases.
The amount, timing, and execution of our stock repurchases may fluctuate based on our priorities for the use of cash for other purposes—such as investing in our business, including operational spending, capital spending, and acquisitions, and returning cash to our stockholders as dividend payments—and because of changes in cash flows, tax laws, and the market price of our common stock.
There can be no assurance that we will continue to declare cash dividends.Our board of directors has adopted a dividend policy pursuant to which we currently pay a cash dividend on our ordinary shares on a quarterly basis. The declaration and payment of any dividend is subject to the approval of our board, and our dividend may be discontinued or reduced at any time. There can be no assurance that we will declare cash dividends in the future in any particular amounts, or at all.Future dividends, if any, and their timing and amount, may be affected by, among other factors: management’s views on potential future capital requirements for strategic transactions, including acquisitions; earnings levels; contractual restrictions; cash position and overall financial condition; and changes to our business model. The payment of cash dividends is restricted by applicable law, contractual restrictions and our corporate structure.
The impact of a negative performance of financial markets and demographic trends on our defined benefit pension liabilities and costs cannot be predicted.We sponsor defined benefit pension plans in a number of countries, and a significant number of our employees are covered by our defined benefit pension plans. As of December 31, 2025, we had recognized a net accrued benefit liability of $342 million, representing the unfunded benefit obligations of our defined pension plans. The funding status and the liabilities and costs of maintaining these defined benefit pension plans may be impacted by financial market developments. For example, the accounting for such plans requires determining discount rates, expected rates of compensation and expected returns on plan assets, and any changes in these variables can have a significant impact
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on the projected benefit obligations and net periodic pension costs. Negative performance of the financial markets could also have a material impact on funding requirements and net periodic pension costs. Our defined benefit pension plans may also be subject to demographic trends. Accordingly, our costs to meet pension liabilities going forward may be significantly higher than they are today, which could have a material adverse impact on our financial condition.Future changes to Dutch, U.S. and other foreign tax laws could adversely affect us.
The European Commission, U.S. Congress and Treasury Department, the Organization for Economic Co-operation and Development (OECD), and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations, particularly payments made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the European Union, U.S. and other countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect us and our affiliates.Recent examples include the OECD’s initiatives to revise profit allocation and nexus rules to allocate more taxing rights to countries where companies have their markets and to establish a minimum tax rate on a global basis. As part of the OECD framework to implement a minimum tax rate, the EU has adopted a directive on ensuring a global minimum level of taxation for multinational companies, also known as Pillar 2, which became effective in 2024. As from that year the Dutch government enacted legislation in response to and based on such EU directive. However, this legislation could be amended as the OECD is considering a change in the Pillar 2 rules as in June 2025 G7 countries issued a statement setting out the principles for a side-by-side safe harbor, adding that they would pursue parallel workstreams to simplify the pillar 2 compliance framework and consider the favorable treatment of substance-based nonrefundable tax credits under the GLOBE rules.We are exposed to a number of different tax uncertainties, which could have an impact on our results.We are required to pay taxes in multiple jurisdictions. We determine the taxes we are required to pay based on our interpretation of the applicable tax laws and regulations in the jurisdictions in which we operate. We may be subject to unfavorable changes in the respective tax laws and regulations to which we are subject. Tax controls, audits, changes in controls and changes in tax laws or regulations or the interpretation given to them may expose us to negative tax consequences, including interest payments and potentially penalties. We have issued transfer-pricing directives in the areas of goods, services and financing, which are in accordance with OECD guidelines. As transfer pricing has a cross-border effect, the focus of local tax authorities on implemented transfer pricing procedures in a country may have an impact on results in another country.Transfer pricing uncertainties can also result from disputes with local tax authorities about transfer pricing of internal deliveries of goods and services or related to financing, acquisitions and divestments, the use of tax credits and permanent establishments, and tax losses carried forward. These uncertainties may have a significant impact on local tax results. We also have various tax assets resulting from acquisitions. Tax assets can also result from the generation of tax losses in certain legal entities. Tax authorities may challenge these tax assets. In addition, the value of the tax assets resulting from tax losses carried forward depends on having sufficient taxable profits in the future.
Item 7 · Management's Discussion & Analysis
+266 paragraphs −252 paragraphs ~252 changed
FY 2023-12-31 (earlier)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsManagement’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on March 1, 2023.Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:
• Overview - Overall analysis of financial and other highlights to provide context for the MD&A
• Results of Operations - An analysis of our financial results
• Financial Condition, Liquidity and Capital Resources - An analysis of changes in our balance sheets and cash flows and a discussion of our financial condition and potential sources of liquidity
• Critical Accounting Estimates - Accounting estimates that management believes are the most important to understanding the assumptions and judgments incorporated in our financial results and forecasts• Use of Certain Non-GAAP Financial Measures - A discussion of the non-GAAP measures used
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NXP has one reportable segment representing the entity as a whole. Our segment represents groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. See Note 1 to the consolidated financial statements for more information regarding our segment.OverviewRevenue for the year-ended ended December 31, 2023 was $13,276 million compared to $13,205 million for the year-ended December 31, 2022, an increase of $71 million or 0.5% year-on-year.
Our gross profit percentage for 2023 and 2022 remained flat at 56.9%, as both revenue and cost of revenue were impacted by inflationary effect of increased input costs which were passed along to end customers.
We continue to generate strong operating cash flows, with $3,513 million in cash flows from operations for 2023. We returned $2,059 million to our shareholders during the year in dividends and repurchases of common stock. Our cash and short-term deposit position at the end of 2023 was $4,271 million.
Q4 2023 compared to Q3 2023
Revenue for the three months ended December 31, 2023 was $3,422 million compared to $3,434 million for the three months ended October 1, 2023, a decrease of $12 million or 0.3% quarter-on-quarter. NXP experienced growth in the Industrial IoT end market of $55 million or 9.1%, Mobile end market of $29 million or 7.7%, and Automotive end market of $8 million or 0.4%. The positive trends were offset by declines in the Communications Infrastructure & Other end market of $104 million or 18.6%.
When aggregating all end markets together and reviewing sales channel performance, revenues through NXP’s third party distribution partners was $2,078 million, an increase of $131 million or 6.7% compared to the previous period. Revenues through NXP’s third party direct OEM and EMS customers was $1,310 million, a decline of $153 million or 10.5% versus the previous period.
From a geographic perspective, revenue increased across the China and the Americas regions. Offsetting the positive growth trends, were declines in revenues in the EMEA and the Asia Pacific regions.
The gross profit percentage for the fourth quarter of 2023 decreased to 56.6% from 57.2% in the third quarter of 2023, primarily due to higher restructuring costs for specific targeted actions under new global restructuring programs in the fourth quarter of 2023.
Operating cash flows for the three months ended December 31, 2023 was $1,137 million compared to $988 million for the three months ended October 1, 2023, an increase of $149 million or 15.1% quarter-on-quarter. Under the financing section of the cash flow, there was a $409 million investment in short-term deposit that was made in the fourth quarter of 2023.
Q4 2023 compared to Q4 2022
Revenue for the three months ended December 31, 2023 was $3,422 million compared to $3,312 million for the three months ended December 31, 2022, an increase of $110 million or 3.3% versus the year ago period. NXP experienced growth in its Automotive end market of $94 million or 5.2% and Industrial IoT end market of $57 million or 9.4% versus the year ago period. Offsetting these positive growth trends were declines of revenues in the Communication Infrastructure & Other end market of $39 million or 7.9% and the Mobile end market of $2 million or 0.5% versus the year ago period.
When aggregating all end markets together, and reviewing sales channel performance, NXP’s third party distribution partners was $2,078 million, an increase of $202 million or 10.8% versus the year ago period. Business transacted through direct OEM and EMS customers was $1,310 million, a decrease of $87 million or 6.2% versus the year ago period.
From a geographic perspective, revenue increased across most regions, with declines in our Asia Pacific regions.
The gross profit percentage for the fourth quarter of 2023 decreased to 56.6% from 57.1% in the fourth quarter of 2022, primarily due to higher restructuring costs for specific targeted actions under new global restructuring programs in the fourth quarter of 2023.
Operating cash flows for the three months ended December 31, 2023 was $1,137 million compared to $1,076 million for the three months ended December 31, 2022, an increase of $61 million or 5.7% versus the
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year ago period. Under the financing section of the cash flow, there was a $409 million investment in short-term deposit that was made in the fourth quarter of 2023. Dividends paid to common stockholders increased 18%, from $221 million in the fourth quarter of 2022 to $261 million in the fourth quarter of 2023.Results of OperationsThe following table presents the composition of operating income for the years ended December 31, 2023 and December 31, 2022.
($ in millions, unless otherwise stated) 2023 2022
Revenue 13,276 13,205
% nominal growth 0.5 19.4
Gross profit 7,553 7,517
Research and development (2,418) (2,148)
Selling, general and administrative (SG&A) (1,159) (1,066)
Amortization of acquisition-related intangible assets (300) (509)
Other income (15) 3
Operating income 3,661 3,797RevenueRevenue for the year-ended December 31, 2023 was $13,276 million compared to $13,205 million for the year-ended December 31, 2022, an increase of $71 million or 0.5% year-on-year.Revenue by end market was as follows:($ in millions, unless otherwise stated) 2023 2022 Increase/(decrease) %
Automotive 7,484 6,879 605 8.8 %
Industrial & IoT 2,351 2,713 (362) (13.3) %
Mobile 1,327 1,607 (280) (17.4) %
Communication Infrastructure & Other 2,114 2,006 108 5.4 %
Revenue 13,276 13,205 71 0.5 %Revenue by sales channel was as follows:($ in millions, unless otherwise stated) 2023 2022 Increase/(decrease) %
Distributors 7,195 7,261 (66) (0.9) %
OEM/EMS 5,963 5,775 188 3.3 %
Other 118 169 (51) (30.2) %
Revenue 13,276 13,205 71 0.5 %
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Revenue by geographic region, which is based on the customer’s shipped-to location, was as follows:
($ in millions, unless otherwise stated) 2023 2022 Increase/(decrease) %
China 1)
4,366 4,700 (334) (7.1) %
APAC, excluding China 3,741 4,165 (424) (10.2) %
EMEA (Europe, the Middle East and Africa) 3,096 2,582 514 19.9 %
Americas 2,073 1,758 315 17.9 %
Revenue 13,276 13,205 71 0.5 %
1) China includes Mainland China and Hong Kong
n Automotive n Mobile n Distributors n Other
n Industrial & IoT n Comm Infra & Other n OEM/EMS
The year-to-date change in revenue was due to a combination of higher average selling prices, offset by lower shipment volumes. The higher average selling prices at 8.1% of revenues or the year-ended December 31, 2023, were a result of increased inflationary input costs from NXP suppliers which were passed along to end customers. The lower shipment volumes at 7.6% of revenues for the year-ended December 31, 2023, were a result of cyclical headwinds, resulting in lower revenue in various end markets. The combination of these two effects resulted in a net increase of $71 million revenue. All end markets reflected declines in volume, offset by higher average selling prices in our Automotive, Industrial IoT, and Communication & Infra end markets.
From an end market perspective, NXP experienced growth in its Automotive and Communication Infrastructure & Other end markets which were offset by declines in the Industrial IoT and the Mobile end markets versus the year ago period.
Revenue in the Automotive end market was $7,484 million, an increase of $605 million or 8.8% versus the year ago period. Within the Automotive end market our processor, advanced analog and connectivity products contributed to the growth, with offsets in our ADAS – Safety products.
Revenue in the Industrial & IoT end market was $2,351 million, a decrease of $362 million or 13.3% versus the year ago period. Within the Industrial & IoT end market the year-to-date decline was across the entire product portfolio.
Revenue in the Mobile end market was $1,327 million, a decrease of $280 million or 17.4% versus the year ago period. Within the Mobile end market revenue our advanced analog and mobile wallet products caused the decline.
Revenue in the Communication Infrastructure & Other end market was $2,114 million, an increase of $108 million or 5.4% versus the year ago period. Within the Communication Infrastructure & Other end market our secure cards and processors products contributed to the growth, with offsets in our RF power and connectivity products.
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When aggregating all end markets together, and reviewing sales channel performance, revenues through NXP’s third party distribution partners was $7,195 million, a decrease of 0.9% versus the year ago period. Revenues through direct OEM and EMS customers was $5,963 million, an increase of 3.3% versus the year ago period.
From a geographic perspective, revenue increased in the EMEA and Americas regions and declined in the China and Asia Pacific regions versus the year ago period.Gross ProfitGross profit for the year-ended December 31, 2023 was $7,553 million, or 56.9% of revenue, compared to $7,517 million, or 56.9% of revenue, with inflationary effects of increased input costs from suppliers passed along to end customer resulting in a relatively flat gross margin year on year.Operating ExpensesOperating expenses for the year-ended December 31, 2023 totaled $3,877 million, or 29.2% of revenue, compared to $3,723 million, or 28.2% of revenue, for the year-ended December 31, 2022.• Research and developmentResearch and development (R&D) costs primarily consist of engineer salaries and wages (including share based compensation and other variable compensation), engineering related costs (including outside services, fixed-asset, IP and other licenses related costs), shared service center costs and other pre-production related expenses.
($ in millions, unless otherwise stated) 2023 2022
% change
Research and development 2,418 $ 2,148 12.6 %
As a percentage of revenue 18.2 % 16.3 % 1.9 ppt
R&D costs for the year-ended December 31, 2023 increased by $270 million, or 12.6%, when compared to last year primarily driven by higher personnel-related costs of $269 million (including engineer salaries and wages of $169 million, higher restructuring costs of $59 million, mainly personnel related costs for specific targeted actions under new global programs, and higher share-based compensation costs of $27 million), partly offset by higher received government assistance due to subsidies and R&D tax credits of $33 million.• Selling, general and administrativeSelling, general and administrative (SG&A) costs primarily consist of personnel salaries and wages (including share based compensation and other variable compensation), communication and IT related costs, fixed-asset related costs and sales and marketing costs (including travel expenses).
($ in millions, unless otherwise stated) 2023 2022
% change
Selling, general and administrative 1,159 $ 1,066 8.7 %
As a percentage of revenue 8.7 % 8.1 % 0.6 ppt
SG&A costs for the year-ended December 31, 2023 increased by $93 million, or 8.7%, when compared to last year primarily driven by higher personnel-related costs of $60 million (including personnel salaries and wages of $28 million and higher restructuring costs of $28 million, mainly personnel related costs for specific targeted actions under new global programs) and higher legal expenses of $25 million (related to ongoing litigation, including the Impinj Patent Litigation).• Amortization of acquisition-related intangible assets($ in millions, unless otherwise stated) 2023 2022
% change
Amortization of acquisition-related intangible assets 300 509 (41.1) %
As a percentage of revenue 2.3 % 3.9 % (1.6) ppt
Amortization of acquisition-related intangible assets decreased by $209 million, or 41.1%, when compared to last year mainly as the effect of fully amortized acquisition-related intangibles during 2022 (with regard to the former Freescale acquisition).
37Other Income (Expense)Other income (expense) includes results from manufacturing service arrangements (“MSA”) and transitional service arrangements (“TSA”) that are put into place when we divest a business or activity, as well as other activity. These arrangements are expected to decrease as the divested business or activity becomes more established. Other income (expense) reflects a loss of $15 million for 2023, compared to an income of $3 million in 2022.Financial Income (Expense)
($ in millions) For the years ended December 31,2023 2022
Interest income 187 61
Interest expense (438) (427)
Extinguishment of debt — (18)
Total other financial income (expense) (58) (50)
Total (309) (434)
Financial income (expense) was an expense of $309 million in 2023, compared to an expense of $434 million in 2022. The change in financial income (expense) is attributable to an increase in interest income of $126 million as a result of higher interest rates and to a lesser extent by a higher level of cash, and no debt extinguishment costs in 2023 (2022: $18 million). Interest expense increased slightly by $11 million as a result of financing activities in fiscal year 2022 including the issuance of debt.Benefit (Provision) for Income TaxesWe recorded an income tax expense of $523 million for the year-ended December 31, 2023, which reflects an effective tax rate of 15.6% compared to an expense of $529 million (15.7%) for the year-ended December 31, 2022.
2023 2022$ % $ %Statutory income tax in the Netherlands 865 25.8 868 25.8
Rate differential local statutory rates versus statutory rate of the Netherlands (77) (2.3) (80) (2.4)
Net change in valuation allowance (3) (0.1) — —
Non-deductible expenses/losses 60 1.8 56 1.7
Netherlands tax incentives (111) (3.3) (113) (3.4)
Foreign tax incentives (251) (7.5) (266) (7.9)
Changes in estimates of prior years’ income taxes (17) (0.5) (2) (0.1)
Withholding taxes 13 0.4 8 0.3
Other differences 44 1.3 58 1.7
Effective tax rate 523 15.6 529 15.7
The effective tax rate reflects the impact of tax incentives, a portion of our earnings being taxed in foreign jurisdictions at rates different than the Netherlands statutory tax rate, changes in estimates of prior years' income taxes, change in valuation allowance non-deductible expenses and withholding taxes. The impact of these items results in offsetting factors that attribute to the change in the effective tax rate between the two periods, with the significant drivers outlined below:
• The Company benefits from certain tax incentives, which reduce the effective tax rate. The dollar amount of the incentive in any given year is commensurate with the taxable income in that same period. In 2023, the foreign tax incentives are lower compared to 2022 primarily due to less qualifying investments.
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• The higher favorable changes in estimates of prior years' income taxes in 2023 is primarily as a result of new guidance released by the Internal Revenue Service to clarify the treatment of specified research and experimental expenditures under Section 174.
• The other differences tax expense in 2023 and 2022 are mainly relating to excess tax benefits, unrecognized tax benefits, FX-effects and taxes due on Global Intangible Low-Taxed Income (GILTI) inclusions in U.S. GILTI is recognized as a current period expense when incurred.Results Relating to Equity-accounted InvesteesResults relating to equity-accounted investees amounted to a loss of $7 million in 2023, whereas in 2022 results relating to equity-accounted investees amounted to a loss of $1 million.Non-controlling InterestsNon-controlling interests are related to the third-party share in the results of consolidated companies, predominantly SSMC. Their share of non-controlling interests amounted to a profit of $25 million for the year-ended December 31, 2023, compared to a profit of $46 million for the year-ended December 31, 2022.Financial Condition, Liquidity and Capital ResourcesWe derive our liquidity and capital resources primarily from our cash flows from operations. We continue to generate strong positive operating cash flows, and we currently use cash to fund operations, meet working capital requirements, for capital expenditures and for potential common stock repurchases, dividends and strategic investments. Based on past performance and current expectations, we believe that our current available sources of funds (including cash and cash equivalents, short-term deposits, RCF Agreement, plus anticipated cash generated from operations) will be adequate to finance our operations, working capital requirements, capital expenditures and potential dividends for at least the next year.
Cash and short-term deposits
As of December 31, 2023, our cash and short-term deposit balance was $4,271 million, an increase of $426 million compared to December 31, 2022 ($3,845 million), of which $214 million (2022, $227 million) was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner. During 2023 and 2022, no dividend was declared. Taking into account the available undrawn amount of the RCF Agreement of $2,500 million, we had access to $6,771 million of liquidity as of December 31, 2023.Capital return
The common stock repurchase activity was as follows:($ in millions, unless otherwise stated) 2023 2022
Shares repurchased 5,460,135 8,330,021
Cost of shares repurchased 1,049 1,429
Average price per share $192.16 $171.59
Under Dutch corporate law and our articles of association, NXP may acquire its own shares if the general meeting of shareholders has granted the board of directors the authority to effect such acquisitions. It is our standard practice to request our annual general meeting of shareholders (the “AGM”) every year to renew this authorization for a period of 18 months from the AGM. For repurchases of shares in 2022 and 2023, the board of directors made use of the authorizations renewed by the AGM on May 26, 2021, June 1, 2022 and May 24, 2023, respectively. Our board of directors has approved the purchase of shares from participants in NXP's equity programs to satisfy participants' tax withholding obligations ("trade for tax") and this authorization will remain in effect until terminated by the board of directors. In March 2021, the board of directors approved the additional repurchase of shares up to a maximum of $2 billion (the "2021 Share Repurchase Program"), and in August 2021, the board of directors increased the 2021 Share Repurchase Program authorization by $2 billion, for a total of $4 billion approved for the repurchase of shares under the 2021 Share Repurchase Program. In January 2022,
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the board of directors approved the additional repurchase of shares up to a maximum of $2 billion (the "2022 Share Repurchase Program"). During the fiscal year-ended December 31, 2022, NXP repurchased 8.3 million shares, for a total of approximately $1.4 billion under the trade for tax and 2021 Share Repurchase Program and during the fiscal year-ended December 31, 2023, NXP repurchased 5.5 million shares, for a total of approximately $1 billion under the trade for tax 2021 and 2022 Share Repurchase Program. Under Dutch tax law, the repurchase of a company’s shares by an entity domiciled in the Netherlands results in a taxable event (unless exemptions apply). The tax on the repurchased shares is attributed to the shareholders, with NXP making the payment on the shareholders’ behalf. As such, the tax on the repurchased shares is accounted for within stockholders’ equity.
Subject to Dutch corporate law and our articles of association, the board of directors of NXP may cancel shares acquired if authorized by the general meeting of shareholders. As with repurchases of our shares, it is our standard practice to request our annual general meeting of shareholders (the “AGM”) every year to renew this authorization for a period of 18 months from the AGM. The board of directors did not make use of the authorization during the fiscal year-ended December 31, 2023.
Under our Quarterly Dividend Program, interim dividends of $0.845 per ordinary share were paid on April 6, July 6, October 6, 2022 and January 6, 2023; and dividends of $1.014 were paid on April 5, July 6, October 5, 2023 and January 5, 2024.
2023 2022
Dividends declared (per share) 4.056 3.380
Dividends declared (in millions) 1,048 885DebtOur total debt, inclusive of aggregate principal, unamortized discounts, premiums, debt issuance costs and fair value adjustments, amounted to $11,175 million as of December 31, 2023, an increase of $10 million compared to December 31, 2022 ($11,165 million).
As of December 31, 2023, the Company had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $11,250 million (collectively the “Notes”), with $1,000 million payable within 12 months. Future interest payments associated with the Notes total $3,135 million, with $402 million payable within 12 months.
The Company had a net debt position (see section Use of Certain Non-GAAP Financial Measures) at December 31, 2023 of $6,904 million compared to $7,320 million as of December 31, 2022.
40Additional capital requirementsWe believe our current positions in cash and cash equivalents and short-term deposits, together with our expected cash flow generated from operations and our expected financing activities will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
• The Company maintains purchase commitments with certain suppliers, primarily for raw materials, semi-finished goods and manufacturing services and for some non-production items. Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary for different suppliers. As of December 31, 2023, the Company had purchase commitments of $4,184 million, of which $1,026 million is expected to be paid in the next 12 months. We expect operating cash outflows to remain elevated as we make payments under these purchase agreements.
• Amounts related to future lease payments for operating lease obligations at December 31, 2023 totaled $299 million, with $64 million expected to be paid within the next 12 months.
• The Company enters into certain technology license arrangements which are used in conjunction with research and development activities for product development. Payments for these technology licenses are made over varying time periods. Outstanding unpaid balances for technology licenses total $159 million as of December 31, 2023, of which $127 million is expected to be paid in the next 12 months.
• The Company has committed to invest approximately $550 million in the newly founded European Semiconductor Manufacturing Company (ESMC) GmbH, over the coming five years, of which approximately $83 million is expected to be paid in the next 12 months.
• Cash outflows for capital expenditures were $827 million in 2023, compared to $1,063 million in 2022. We expect to maintain similar levels of capital expenditures as a percentage of revenue in 2024, to support current and future manufacturing and production capacity needs.
• Our research and development expenditures were $2,418 million in 2023 and $2,148 million in 2022, and we expect to maintain similar levels of investment in research and development as a percentage of revenue in 2024.
From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines. Any such transaction could require significant use of our cash and cash equivalents and short term deposits, or require us to arrange for new debt and equity financing to fund the transaction. Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions. In the future, we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness. Our business may not generate sufficient cash flow from operations, or we may not have enough capacity under the RCF Agreement, or from other sources in an amount sufficient to enable us to repay our indebtedness, including the RCF Agreement, the unsecured notes or to fund our other liquidity needs, including working capital and capital expenditure requirements. In any such case, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. See Part I, Item 1A. Risk Factors .
2023 Financing Activities
There were no significant financing activities during 2023.
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2022 Financing Activities
Revolving Credit Facility
On August 26, 2022, NXP B.V., together with NXP Funding LLC, amended and restated its revolving credit agreement entered into on June 11, 2019. The amended and restated revolving credit agreement provides for $2.5 billion of senior unsecured revolving credit commitments and is scheduled to mature on August 26, 2027.
Exchange Offers
On April 14, 2022, we initiated a registered exchange offering of our outstanding Senior Unsecured Notes for new issues of substantially identical registered debt securities (the “Exchange Offers”). The Exchange Offers expired on May 16, 2022, at which time substantially all of the Notes were exchanged for registered senior unsecured notes.
Debt Issuance and redemption
On May 16, 2022, NXP B.V., together with NXP Funding LLC and NXP USA, Inc., issued $500 million of 4.4% senior unsecured notes due June 1, 2027 and $1 billion of 5.0% senior unsecured notes due January 15, 2033. On May 27, 2022 we redeemed the $900 million aggregate principal amount of outstanding dollar-denominated 4.625% Senior Unsecured Notes due 2023 in accordance with the terms of the indenture.
Debt Position
Short-term Debt
As of December 31, 2023, we had $1,000 million short-term debt outstanding (December 31, 2022: no short-term debt outstanding).
Long-term Debt
As of December 31, 2023 and 2022, we had outstanding debt of:
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($ in millions) December 31, 2022 Accrual/release Original Issuance/Debt Discount and Debt Issuance Cost Debt Exchanges/ Repurchase/ New Borrowings December 31, 2023
U.S. dollar-denominated 4.875% senior unsecured notes due March 2024 (1)
998 2 — 1,000
U.S. dollar-denominated 2.7% senior unsecured notes due May 2025 (2)
498 1 — 499
U.S. dollar-denominated 5.35% senior unsecured notes due March 2026 (1)
498 1 — 499
U.S. dollar-denominated 3.875% senior unsecured notes due June 2026 (3)
748 — — 748
U.S. dollar-denominated 3.15% senior unsecured notes due May 2027 (2)
498 — — 498
U.S. dollar-denominated 4.4% senior unsecured notes due June 2027 (6)
496 1 — 497
U.S. dollar-denominated 5.55% senior unsecured notes due December 2028 (1)
497 — — 497
U.S. dollar-denominated 4.3% senior unsecured notes due June 2029 (3)
993 1 — 994
U.S. dollar-denominated 3.4% senior unsecured notes due May 2030 (2)
994 — — 994
U.S. dollar-denominated 2.5% senior unsecured notes due May 2031 (4)
993 1 — 994
U.S. dollar-denominated 2.65% senior unsecured notes due Feb 2032 (5)
992 1 — 993
U.S. dollar-denominated 5% senior unsecured notes due Jan 2033 (6)
989 1 — 990
U.S. dollar-denominated 3.25% senior unsecured notes due May 2041 (4)
988 1 — 989
U.S. dollar-denominated 3.125% senior unsecured notes due Feb 2042 (5)
492 — — 492
U.S. dollar-denominated 3.25% senior unsecured notes due Nov 2051 (5)
491 — — 491
11,165 10 — 11,175
RCF Agreement (7)
— — — —
Total long-term debt
11,165 10 — 11,175
(1) On December 6, 2018, we issued $1,000 million aggregate principal amount of 4.875% Senior Unsecured Notes due 2024, $500 million aggregate principal amount of 5.35% Senior Unsecured Notes due 2026 and $500 million aggregate principal amount of 5.55% Senior Unsecured Notes due 2028.
(2) On May 1, 2020, we issued $500 million aggregate principal amount of 2.7% Senior Unsecured Notes due 2025, $500 million aggregate principal amount of 3.15% Senior Unsecured Notes due 2027 and $1 billion aggregate principal amount of 3.4% Senior Unsecured Notes due 2030.
(3) On June 18, 2019, we issued $750 million of 3.875% Senior Unsecured Notes due 2026 and $1 billion of 4.3% Senior Unsecured Notes due 2029.
(4) On May 11, 2021, we issued $1,000 million aggregate principal amount of 2.5% Senior Unsecured Notes due 2031 and $1,000 million aggregated principal amount of 3.25% Senior Unsecured Notes due 2041.
(5) On November 30, 2021, we issued $1,000 million aggregate principal amount of 2.65% Senior Unsecured Notes due 2032, $500 million aggregate principal amount of 3.125% Senior Unsecured Notes due 2042 and $500 million aggregated principal amount of 3.25% Senior Unsecured Notes due 2051.
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(6) On May 16, 2022, we issued $500 million aggregate principal amount of 4.4% Senior Unsecured Notes due 2027 and $1,000 million aggregate principal amount of 5% Senior Unsecured Notes due 2033.
(7) On August 26, 2022, we entered into a $2.5 billion unsecured revolving credit facility agreement.
We may from time to time continue to seek to retire or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. See the discussion in Part II, Item 7. Financial Condition, Liquidity and Capital Resources above.Cash flowsOur cash and cash equivalents in 2023 increased by $15 million (excluding the effect of changes in exchange rates on our cash position of $2 million) as follows:($ in millions) Year ended December 31,2023 2022
Net cash provided by (used for) operating activities 3,513 3,895
Net cash (used for) provided by investing activities (1,508) (1,249)
Net cash provided by (used for) financing activities (1,990) (1,619)
Increase (decrease) in cash and cash equivalents 15 1,027• Cash Flow from Operating ActivitiesFor the year-ended December 31, 2023 our operating activities provided $3,513 million in cash. This was primarily the result of net income of $2,822 million, adjustments to reconcile the net income of $1,265 million and changes in operating assets and liabilities of $(594) million. Adjustments to net income include offsetting non-cash items, such as depreciation and amortization of $1,106 million, share-based compensation of $411 million, a loss on equity securities of $1 million, results relating to equity-accounted investees of $7 million and changes in deferred taxes of $(267) million. Changes in operating assets and liabilities were primarily driven by a $353 million increase in inventories due to improved supply capabilities, $138 million increase in receivables and other current assets from prepayments to secure production supply with multiple vendors, and $119 million decrease in accounts payable and other liabilities as a result of timing related to payments.
For the year-ended December 31, 2022 our operating activities provided $3,895 million in cash. This was primarily the result of net income of $2,833 million, adjustments to reconcile the net income of $1,410 million and changes in operating assets and liabilities of $(372) million. Adjustments to net income include offsetting non-cash items, such as depreciation and amortization of $1,250 million, share-based compensation of $364 million, amortization of the discount on debt and debt issuance costs of $9 million, a loss on extinguishment of debt of $18 million, a loss on equity securities of $4 million, results relating to equity-accounted investees of $1 million and changes in deferred taxes of $(236) million. Changes in operating assets and liabilities were primarily driven by a $593 million increase in inventories due increased production levels in order to align inventory on hand with expected demand, $106 million increase in receivables and other current assets from the accumulation of insignificant increases in numerous asset accounts within the "other" classification, and $633 million increase in accounts payable and other liabilities as a result of the increase of trade accounts payable to meet the increase in growth in our business and timing related to payments.• Cash Flow from Investing ActivitiesNet cash used for investing activities amounted to $1,508 million for the year-ended December 31, 2023 and principally consisted of the cash outflows for capital expenditures of $827 million, $409 investments in short-term deposits, $179 million for the purchase of identified intangible assets, and $94 million for the purchase of investments.
Net cash used for investing activities amounted to $1,249 million for the year-ended December 31, 2022 and principally consisted of the cash outflows for capital expenditures of $1,063 million, $159 million for the purchase of identified intangible assets, $5 million for the purchase of equipment leased to others, $27 million purchases of interests in businesses (net of cash acquired), and $20 million purchase of investments, partly offset
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by $10 million from proceeds from return of equity investments and $13 million from proceeds from sale of investments.• Cash Flow from Financing ActivitiesNet cash used for financing activities was $1,990 million for the year-ended December 31, 2023. This was primarily driven by the dividend payment to common stockholders of $1006 million, and purchase of treasury shares and restricted stock unit holdings of $1,053 million; partially offset by the $71 million proceeds from the issuance of common stock through stock plans.
Net cash used for financing activities was $1,619 million for the year-ended December 31, 2022. This was primarily driven by purchase of treasury shares and restricted stock unit holdings of $1,426 million, repurchase of long-term debt of $917 million, the dividend payment to common stockholders of $815 million, cash paid for debt issuance costs of $14 million; partially offset by the $1,496 million proceeds from the issuance of long-term debt and $59 million proceeds from the issuance of common stock through stock plans.Information Regarding Guarantors of NXP (unaudited)
Summarized Combined Financial Information for Guarantee of Securities of SubsidiariesAll debt instruments are guaranteed, fully and unconditionally, jointly and severally, by NXP Semiconductors N.V. and issued or guaranteed by NXP USA, Inc., NXP B.V. and NXP LLC, (together, the “Subsidiary Obligors” and together with NXP Semiconductors N.V., the “Obligor Group”). Other than the Subsidiary Obligors, none of the Company’s subsidiaries (together the “Non-Guarantor Subsidiaries”) guarantee the Notes. The Company consolidates the Subsidiary Obligors in its consolidated financial statements and each of the Subsidiary Obligors are wholly owned subsidiaries of the Company.All of the existing guarantees by the Company rank equally in right of payment with all of the existing and future senior indebtedness of the Obligor Group. There are no significant restrictions on the ability of the Obligor Group to obtain funds from respective subsidiaries by dividend or loan.
The following tables present summarized financial information of the Obligor Group on a combined basis, with intercompany balances and transactions between entities of the Obligor Group eliminated and investments and equity in the earnings of the Non-Guarantor Subsidiaries excluded. The Obligor Group’s amounts due from, amounts due to, and intercompany transactions with Non-Guarantor Subsidiaries have been disclosed below the table, when material.
Summarized Statements of Income($ in millions) December 31, 2023
Revenue 8,064
Gross Profit 4,075
Operating income 1,508
Net income 715
45Summarized Balance Sheets
As of($ in millions) December 31, 2023
Current assets 4,298
Non-current assets 11,773
Total assets 16,071
Current liabilities 2,005
Non-current liabilities 10,566
Total liabilities 12,571
Obligor's Group equity 3,500
Total liabilities and Obligor's Group equity 16,071
NXP Semiconductors N.V. is the head of a fiscal unity for the corporate income tax and VAT that contains the most significant Dutch wholly-owned group companies. The Company is therefore jointly and severally liable for the tax liabilities of the tax entity as a whole, and as such the income tax expense of the Dutch fiscal unity has been included in the Net income of the Obligor Group.
The financial information of the Obligor Group includes sales executed through a Non-Guarantor Subsidiary single-billing entity as a sales agent on behalf of an entity in the Obligor Group. The Obligor Group has sales to non-guarantors (2023: $792 million). The Obligor Group has amounts due from equity financing (2023: $5,441 million) and due to debt financing (2023: $2,346 million) with non-guarantor subsidiaries.
Recent Legislation
Pillar Two
Many countries are implementing legislation and other guidance to align their international tax rules with the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules, and nexus-based tax incentive practices. Pillar Two legislation, focused on implementing a global minimum corporate tax, has been enacted in certain jurisdictions the Company operates. The legislation will be effective for the Company’s financial year beginning January 1, 2024. The Company is in scope of the enacted legislation and has performed an assessment of the Company’s potential exposure to Pillar Two income taxes. The assessment of the potential exposure to Pillar Two income taxes is based on the Company’s forecast for financial year-ended December 31, 2024 in combination with the most recent tax filings and country-by-country reporting for the constituent entities of the Company. Based on the assessment, the Pillar Two effective tax rates in most of the jurisdictions that the Company operates in are above 15%. However, there are a limited number of jurisdictions where the transitional safe harbor relief does not apply and the Pillar Two effective tax rate is close to 15%. The Company does not expect a material exposure to Pillar Two in those jurisdictions.Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our Consolidated Financial Statements. Some of our accounting policies
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require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Our most critical accounting estimates include:
• the valuation of inventory, which impacts gross margin;
• the assessment of recoverability of goodwill, identified intangible assets and tangible fixed assets, which impacts gross margin or operating expenses when we record asset impairments or accelerate their depreciation or amortization;
• revenue recognition, which impacts our results of operations;
• the recognition of current and deferred income taxes (including the measurement of uncertain tax positions), which impacts our provision for income taxes;
• the assumptions used in the determination of postretirement benefit obligations, which impacts operating expenses;
• the assumptions used in the determination of share based compensation, which impacts gross margin and operating expenses; and
• the recognition and measurement of loss contingencies, which impacts gross margin or operating expenses when we recognize a loss contingency or revise the estimates for a loss contingency.
In the following section, we discuss these policies further, as well as the estimates and judgments involved.InventoriesInventories are valued at the lower of cost or net realizable value. We regularly review our inventories and write down our inventories for estimated losses due to obsolescence. This allowance is determined for groups of products based on sales of our products in the recent past and/or expected future demand. Future demand is affected by market conditions, technological obsolescence, new products and strategic plans, each of which is subject to change with little or no forewarning. In estimating obsolescence, we utilize information that includes projecting future demand.
The need for strategic inventory levels to ensure competitive delivery performance to our customers are balanced against the risk of inventory obsolescence due to rapidly changing technology and customer requirements.
The change in our reserves for inventories was primarily due to the normal review and accrual of obsolete or excess inventory. If actual future demand or market conditions are less favorable than those projected by our management, additional inventory write-downs may be required.GoodwillGoodwill is required to be assessed for impairment at least once annually, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of a reporting unit’s goodwill. Such events or changes in circumstances can be significant changes in business climate, operating performance or competition, or upon the disposition of a significant portion of a reporting unit. A significant amount of judgment is involved in determining if an indicator of impairment has occurred between annual test dates. We perform impairment tests using a fair value approach when necessary. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, including projected future cash flows, discount rates based on weighted average cost of capital and future economic and market conditions. We base our fair-value estimates on assumptions we believe to be reasonable. Actual cash flow amounts for future periods may differ from estimates used in impairment testing.
We perform our annual impairment test for goodwill in the fourth quarter of each fiscal year. We did not recognize any impairment charges for goodwill in the years presented, as our annual impairment testing indicated that the fair value exceeded the recorded value for the respective reporting unit.
47Impairment or disposal of identified long-lived assetsWe perform reviews of long-lived assets including property, plant and equipment, and intangible assets subject to amortization, whenever facts and circumstances indicate that the useful life is shorter than what we had originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of the long-lived assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Impairment losses, if any, are based on the excess of the carrying amount over the fair value of those assets. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated.
The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.Revenue recognitionThe Company recognizes revenue under the core principle to depict the transfer of control to customers in an amount reflecting the consideration the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The vast majority of the Company’s revenue is derived from the sale of semiconductor products to distributors, Original Equipment Manufacturers (“OEMs”) and similar customers. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the consideration to which the Company expects to be entitled. Variable consideration is estimated and includes the impact of discounts, price protection, product returns and distributor incentive programs. The estimate of variable consideration is dependent on a variety of factors, including contractual terms, analysis of historical data, current economic conditions, industry demand and both the current and forecasted pricing environments. The estimate of variable consideration is not typically constrained because the Company has extensive experience with these contracts.
Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs at shipment. In determining whether control has transferred, the Company considers if there is a present right to payment and legal title, and whether risks and rewards of ownership having transferred to the customer.
For sales to distributors, revenue is recognized upon transfer of control to the distributor. For some distributors, contractual arrangements are in place which allow these distributors to return products if certain conditions are met. These conditions generally relate to the time period during which a return is allowed and reflect customary conditions in the particular geographic market. Other return conditions relate to circumstances arising at the end of a product life cycle, when certain distributors are permitted to return products purchased during a pre-defined period after the Company has announced a product’s pending discontinuance. These return rights are a form of variable consideration and are estimated using the most likely method based on historical return rates in order to reduce revenues recognized. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. For sales where return rights exist, the Company has determined, based on historical data, that only a small percentage of the sales of this type to distributors is actually returned. Repurchase agreements with OEMs or distributors are not entered into by the Company.
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Sales to most distributors are made under programs common in the semiconductor industry whereby distributors receive certain price adjustments to meet individual competitive opportunities. These programs may include credits granted to distributors, or allow distributors to return or scrap a limited amount of product in accordance with contractual terms agreed upon with the distributor, or receive price protection credits when our standard published prices are lowered from the price the distributor paid for product still in its inventory. In determining the transaction price, the Company considers the price adjustments from these programs to be variable consideration that reduce the amount of revenue recognized. The Company’s policy is to estimate such price adjustments using the most likely method based on rolling historical experience rates, as well as a prospective view of products and pricing in the distribution channel for distributors who participate in our volume rebate incentive program. We continually monitor the actual claimed allowances against our estimates, and we adjust our estimates as appropriate to reflect trends in pricing environments and inventory levels. The estimates are also adjusted when recent historical data does not represent anticipated future activity. Historically, actual price adjustments for these programs relative to those estimated have not materially differed.Income taxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. Measurement of deferred tax assets and liabilities is based upon the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax liabilities for withholding taxes on dividends from subsidiaries are recognized in situations where the Company does not consider the earnings indefinitely reinvested and to the extent that these withholding taxes are not expected to be refundable.
Deferred tax assets, including assets arising from loss carryforwards, are recognized, net of a valuation allowance, if based upon the available evidence it is more likely than not that the asset will be realized.
The income tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities. The income tax benefit recognized is measured based on the largest benefit that is greater than 50% likely to be realized upon resolution of the uncertainty. Unrecognized tax benefits are presented as a reduction to the deferred tax asset for related temporary differences, tax credits or net operating loss carryforwards, unless these would not be available, in which case the uncertain tax benefits are presented together with the related interest and penalties as a liability, under accrued liabilities and other non-current liabilities based on the timing of the expected payment. Related penalties are recorded as income tax expense, whereas related interest is reported as financial expense in the statement of operations.
Postretirement benefits
The Company’s employees participate in pension and other postretirement benefit plans in many countries. The costs of pension and other postretirement benefits and related assets and liabilities with respect to the Company’s employees participating in defined benefit plans are based upon actuarial valuations.
The projected defined benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. For the Company’s major plans, the discount rate is derived from market yields on high quality corporate bonds. Plans in countries without a deep corporate bond market use a discount rate based on the local government bond rates.
In calculating obligation and expense, the Company is required to select actuarial assumptions. These assumptions include discount rate, expected long-term rate of return on plan assets and rates of increase in compensation costs determined based on current market conditions, historical information and consultation with and input from our actuaries. Changes in the key assumptions can have a significant impact to the projected benefit obligations, funding requirements and periodic pension cost incurred.
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The Company determines the fair value of plan assets based on quoted prices or comparable prices for non-quoted assets. For a defined benefit pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement defined benefit plan it is the accumulated postretirement benefit obligation.
Share-based compensation
We recognize compensation expense for all share-based awards based on the grant-date estimated fair values, net of an estimated forfeiture rate. Share-based compensation cost for restricted share units (“RSUs”) with time-based vesting is measured based on the closing fair market value of our common stock on the date of the grant, reduced by the present value of the estimated expected future dividends, and then multiplied by the number of RSUs granted. Share-based compensation cost for performance-based share units (“PSUs”) granted with performance or market conditions is measured using a Monte Carlo simulation model on the date of grant.
Our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option exercise behaviors. When establishing the expected life assumption, we used the ‘simplified’ method prescribed in ASC Topic 718 for companies that do not have adequate historical data. The risk-free interest rate is measured as the prevailing yield for a U.S. Treasury security with a maturity similar to the expected life assumption. We also estimate a forfeiture rate at the time of grant and revise this rate in subsequent periods if actual forfeitures or vesting differ from the original estimates.
We evaluate the assumptions used to value our awards on a quarterly basis. If factors change and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellation of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense.
Litigation and claims
We are regularly involved as plaintiffs or defendants in claims and litigation related to our past and current business operations. The claims can cover a broad range of topics, including intellectual property, reflecting the Company’s identity as a global manufacturing and technology business. The Company vigorously defends itself against improper claims, including those asserted in litigation. Due to the unpredictable nature of litigation, there can be no assurance that the Company’s accruals will be sufficient to cover the extent of its potential exposure to losses but, historically, legal actions have not had a material adverse effect on the Company’s business, results of operations or financial condition.
The estimated aggregate range of reasonably possible losses is based on currently available information in relation to the claims that have arisen and on the Company’s best estimate of such losses for those cases for which such estimate can be made. For certain claims, the Company believes that an estimate cannot currently be made. The estimated aggregate range requires significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants (including the Company) in such claims whose share of liability has yet to be determined, the numerous yet-unresolved issues in many of the claims, and the attendant uncertainty of the various potential outcomes of such claims. Accordingly, the Company’s estimate will change from time to time, and actual losses may be more than the current estimate.Use of Certain Non-GAAP Financial MeasuresIn addition to disclosing financial results in accordance with U.S. GAAP, this document contains references to net debt. Net debt is a non-GAAP financial measure and represents total debt (short-term and long-term) after deduction of cash and cash equivalents and short-term deposits. We believe this measure provides investors with useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to calculating our net leverage.
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The following is a reconciliation of net debt to the most directly comparable GAAP measure, total debt, as adjusted for our cash and cash equivalents our net debt was calculated as follows:
($ in millions) 2023 2022
Long-term debt 10,175 11,165
Short-term debt 1,000 —
Total debt 11,175 11,165
Less: cash and cash equivalents (3,862) (3,845)
Less: short-term deposits (409) —
Net debt 6,904 7,320
We understand that, although net debt is used by investors and securities analysts in their evaluation of companies, this concept has limitations as an analytical tool and it should not be used as an alternative to any other measure in accordance with U.S. GAAP.
FY 2025-12-31 (later)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsManagement’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. This section of this Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 as filed with the SEC on February 20, 2025.Our MD&A is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:
• Overview - Overall analysis of financial and other highlights to provide context for the MD&A
• Results of Operations - An analysis of our financial results
• Financial Condition, Liquidity and Capital Resources - An analysis of changes in our balance sheets and cash flows and a discussion of our financial condition and potential sources of liquidity
• Critical Accounting Estimates - Accounting estimates that management believes are the most important to understanding the assumptions and judgments incorporated in our financial results and forecasts• Use of Certain Non-GAAP Financial Measures - A discussion of the presentation of non-GAAP financial measures
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NXP has one reportable segment representing the entity as a whole. Our segment represents groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. See Note 1 to the consolidated financial statements for more information regarding our segment reporting.OverviewYear in Focus
• Revenue was $12.3 billion, down 2.7% year-on-year;
• GAAP gross margin was 54.7%, and GAAP operating margin was 24.8%;
• Non-GAAP gross margin was 56.8%, and non-GAAP operating margin was 33.1%;
• Cash flow from operations was $2,820 million, with net capital expenditures on property, plant and equipment of $395 million, resulting in non-GAAP free cash flow of $2,425 million; and
• During 2025, NXP returned capital to shareholders with the payment of $1,025 million in cash dividends and the repurchase of $899 million of its common shares, for a total capital return of $1,924 million.
Kurt Sievers, our former CEO, voluntarily retired as CEO and executive director of the Company, effective October 28, 2025. The Company's Board of Directors unanimously appointed Rafael Sotomayor to succeed Mr. Sievers as President and CEO and temporary executive director of the Company, effective as of October 28, 2025.
On June 17, 2025, NXP announced the closing of the acquisition of 100% of TTTech Auto for $766 million in cash ($675 million net of cash acquired). TTTech Auto is a leader in innovating unique safety-critical systems and middleware for software-defined vehicles (SDVs). The TTTech Auto acquisition complements and expands NXP’s system and software offerings in the Automotive and Industrial & IoT end markets.
On October 24, 2025, NXP closed the previously announced acquisition of 100% of Aviva Links for $222 million in cash ($202 million net of cash acquired) and $26 million through the settlement of previously held investments in Aviva Links. Aviva Links is a provider of Automotive SerDes Alliance (ASA) compliant in-vehicle connectivity solutions. The Aviva Links acquisition complements and expands NXP’s automotive networking solutions in the Automotive and Industrial & IoT end markets.
On October 27, 2025, NXP closed the previously announced acquisition of 100% of Kinara, Inc. for $284 million in cash ($283 million net of cash acquired). Kinara is an industry leader in high performance, energy-efficient and programmable discrete neural processing units (NPUs). The Kinara acquisition complements and expands NXP’s solutions for AI-powered edge systems in the Industrial & IoT and Automotive end markets.
See Note 3 to the consolidated financial statements for further information regarding NXP’s acquisition of TTTech Auto, Aviva Links, and Kinara, Inc.
On February 2, 2026, NXP completed the previously announced sale of our MEMS sensors business line for $900 million in cash before closing adjustments and up to an additional $50 million contingent upon the achievement of specified technical milestones.
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Revenue for the year ended December 31, 2025, was $12,269 million compared to $12,614 million for the year ended December 31, 2024, a decrease of $345 million or 2.7% year-on-year.
Our gross profit percentage for 2025 of 54.7% decreased when compared to 2024 (56.4%), mainly driven by price and unfavorable product mix.
We continue to generate strong operating cash flows, with $2,820 million in cash flows from operations for 2025. We returned $1,924 million to our shareholders during the year in dividends and repurchases of common stock. Our cash position at the end of 2025 was $3,267 million.
Quarter in Focus
• Revenue for the fourth quarter of 2025 was $3.3 billion, up 7.2% year-on-year;
• GAAP gross margin was 54.2%, and GAAP operating margin was 22.3%;
• Non-GAAP gross margin was 57.4%, and non-GAAP operating margin was 34.6%;
• Cash flow from operations was $891 million, with net capital expenditures on property, plant and equipment of $98 million, resulting in non-GAAP free cash flow of $793 million;
• During the fourth quarter of 2025, NXP returned capital to shareholders with the payment of $254 million in cash dividends and the repurchase of $338 million of its common shares, for a total capital return of $592 million.
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Sequential Results
Q4 2025 compared to Q3 2025
Revenue for the three months ended December 31, 2025, was $3,335 million compared to $3,173 million for the three months ended September 28, 2025, an increase of $162 million or 5.1% quarter-on-quarter, in line with management's expectations. Within our end markets, the Industrial & IoT end market increased $61 million or 10.5%, the Mobile end market increased $55 million or 12.8%, the Automotive end market increased $39 million or 2.1%, and the Communication Infrastructure & Other end market increased $7 million or 2.1%.
When aggregating all end markets together and reviewing sales channel performance, revenue from distributors was $2,025 million, an increase of $159 million or 8.5% compared to the previous period. Revenue from direct customers was $1,274 million, an increase of $5 million or 0.4% compared to the previous period.
From a geographic perspective, revenue increased across all regions.
The gross profit percentage for the fourth quarter of 2025 decreased to 54.2% from 56.3% in the third quarter of 2025, primarily due to impairments related to the scaling down of a non-strategic product line.
Operating income for the fourth quarter of 2025 was $744 million compared to $893 million for the third quarter of 2025, a decrease of $149 million or 16.7%. The sequential decrease was mainly due to higher restructuring costs for specific targeted actions under a new global restructuring program in the fourth quarter of 2025.
Operating cash flows for the fourth quarter of 2025 was $891 million compared to $585 million for the third quarter of 2025, an increase of $306 million or 52.3% quarter-on-quarter.
38Results of OperationsThe following table presents the operating results for the years ended December 31, 2025, and December 31, 2024.
($ in millions, unless otherwise stated) 2025 % of Revenue 2024 % of Revenue
Revenue 12,269 12,614
% nominal growth (2.7) (5.0)
Gross profit 6,716 7,119
Gross margin 54.7 % 56.4 %
Research and development (2,360) 19.2 % (2,347) 18.6 %
Selling, general and administrative (1,204) 9.8 % (1,164) 9.2 %
Amortization of acquisition-related intangible assets (117) 1.0 % (136) 1.1 %
Other income (expense) 12 0.1 % (55) 0.4 %
Operating income (loss) 3,047 24.8 % 3,417 27.1 %
Financial income (expense) (384) 3.1 % (318) 2.5 %
Benefit (provision) for income taxes (525) 4.3 % (545) 4.3 %
Results relating to equity-accounted investees (70) 0.6 % (12) 0.1 %
Net income (loss) 2,068 16.9 % 2,542 20.2 %
Less: Net income (loss) attributable to non-controlling interests 47 0.4 % 32 0.3 %
Net income (loss) attributable to stockholders 2,021 16.5 % 2,510 19.9 %
Diluted earnings per share 7.95 9.73RevenueRevenue for the year ended December 31, 2025, was $12,269 million compared to $12,614 million for the year ended December 31, 2024, a decrease of $345 million or 2.7% year-on-year.
39Revenue by end market was as follows:($ in millions, unless otherwise stated) 2025 2024 Increase/(decrease) %
Automotive 7,116 7,151 (35) (0.5) %
Industrial & IoT 2,273 2,269 4 0.2 %
Mobile 1,584 1,497 87 5.8 %
Communication Infrastructure & Other 1,296 1,697 (401) (23.6) %
Revenue 12,269 12,614 (345) (2.7) %Revenue by sales channel was as follows:($ in millions, unless otherwise stated) 2025 2024 Increase/(decrease) %
Distributors 7,051 7,203 (152) (2.1) %
Direct 5,084 5,291 (207) (3.9) %
Other 134 120 14 11.7 %
Revenue 12,269 12,614 (345) (2.7) %
Revenue by geographic region, which is based on the location where the sale originated, was as follows: 1)
($ in millions, unless otherwise stated) 2025 2024 Increase/(decrease) %
APAC, excluding China 3,581 3,794 (213) (5.6) %
Americas 3,376 3,471 (95) (2.7) %
EMEA 3,276 3,428 (152) (4.4) %
China 2)
2,036 1,921 115 6.0 %
Revenue 12,269 12,614 (345) (2.7) %
1) As of December 31, 2025, and applied retrospectively for all the periods presented, the Company revised its methodology for attributing revenue to geographic areas to reflect the location where sales originate, which represents where critical commercial decisions are made. This may differ from the customer's shipped-to location. The change in reporting basis was made to more appropriately reflect how we manage our business. For 2025, the largest impacts from the change were to the Americas region and the China region, which reflected changes of approximately 104.9% and (57.0)%, respectively.
2) China includes Mainland China and Hong Kong
The year-to-date change in revenue was primarily driven by a lower selling mix of products, slightly offset by higher shipment volumes. The combination of these two effects resulted in a net decrease of $345 million revenue.
From an end market perspective, NXP experienced declines in the Communication Infrastructure & Other and Automotive end markets, which was partially offset by growth in its Mobile and Industrial & IoT end markets versus the year ago period.
Revenue in the Automotive end market was $7,116 million, a decrease of $35 million or 0.5% versus the year ago period. The decline was driven by processors, partially offset by growth in mixed-signal products.
Revenue in the Industrial & IoT end market was $2,273 million, an increase of $4 million or 0.2% versus the year ago period. The increase was attributable to growth in mixed-signal products, partially offset by declines in processors.
Revenue in the Mobile end market was $1,584 million, an increase of $87 million or 5.8% versus the year ago period, with processors and mixed-signal products contributing to the growth.
Revenue in the Communication Infrastructure & Other end market was $1,296 million, a decrease of $401 million or 23.6% versus the year ago period. The decline was primarily due to processors.
When aggregating all end markets and reviewing sales channel performance, revenue from distributors was $7,051 million, a decrease of $152 million or 2.1% versus the year ago period. Revenue from direct customers was $5,084 million, a decrease of $207 million or 3.9% versus the year ago period.
From a geographic perspective, revenue increased year-on-year in the China region and declined in the APAC, EMEA, and Americas regions.
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41Gross ProfitGross profit for the year ended December 31, 2025, was $6,716 million, or 54.7% of revenue, compared to $7,119 million, or 56.4% of revenue for the year ended December 31, 2024. The decrease in gross margin was mainly driven by:
- Lower selling prices (1.9%)
- Mix /volume (1.5%)
+ Lower manufacturing costs (factory utilization and sourcing) (2.1%)Operating ExpensesOperating expenses for the year ended December 31, 2025, totaled $3,681 million or 30.0% of revenue, compared to $3,647 million, or 28.9% of revenue, for the year ended December 31, 2024.• Research and developmentResearch and development (R&D) costs primarily consist of engineer salaries and wages (including share-based compensation and other variable compensation), engineering related costs (including outside services, fixed-asset, IP and other licenses related costs), shared service center costs and other pre-production related expenses.
($ in millions, unless otherwise stated) 2025 2024 % change
Research and development 2,360 2,347 0.6 %
As a percentage of revenue 19.2 % 18.6 % 0.6 ppt
R&D costs for the year ended December 31, 2025, increased by $13 million, or 0.6%, when compared to last year primarily driven by:
+ Increased restructuring expenses ($42 million)
+ Increased project spend ($10 million)
- Lower variable compensation expenses ($37 million)• Selling, general and administrativeSelling, general and administrative (SG&A) costs primarily consist of personnel salaries and wages (including share- based compensation and other variable compensation), communication and IT related costs, fixed-asset related costs and sales and marketing costs (including travel expenses).
($ in millions, unless otherwise stated) 2025 2024 % change
Selling, general and administrative 1,204 1,164 3.4 %
As a percentage of revenue 9.8 % 9.2 % 0.6 ppt
SG&A costs for the year ended December 31, 2025, increased by $40 million, or 3.4%, when compared to last year primarily driven by:
+ Increased restructuring expenses ($43 million)
+ Increased expenses driven by personnel and integration related costs of our acquisitions ($37 million)
- Lower legal fees ($26 million)
- Lower variable compensation costs ($14 million)• Amortization of acquisition-related intangible assets($ in millions, unless otherwise stated) 2025 2024 % change
Amortization of acquisition-related intangible assets 117 136 (14.0) %
As a percentage of revenue 1.0 % 1.1 % (0.1) ppt
Amortization of acquisition-related intangible assets decreased by $19 million, or 14.0%, when compared to last year, mainly from the effect of certain acquisition-related intangibles becoming fully amortized (with regard to the previous Marvell acquisition) partly offset by amortization related to the recent acquisitions of TTTech Auto and Kinara.
42Other Income (Expense)Other income (expense) includes results from manufacturing service arrangements (MSA) and transitional service arrangements (TSA) that are put into place when we divest a business or activity, as well as other activities. These arrangements are expected to decrease as the divested business or activity becomes more established. Other income (expense) reflects an income of $12 million for 2025, compared to an expense of $55 million in 2024, which included a $40 million charge for a vacated deposit on an exited technology.Financial Income (Expense)
($ in millions) For the years ended December 31,2025 2024
Interest income 145 160
Interest expense (466) (398)
Total other financial income (expense) (63) (80)
Total (384) (318)
Financial income (expense) was an expense of $384 million in 2025, compared to an expense of $318 million in 2024. The change in financial income (expense) is attributable to an increase in interest expense of $68 million as a result of the issuance of new bonds, EIB loans and commercial paper notes. Interest income decreased by $15 million as a result of lower cash levels in 2025. Other financial expenses decreased due to adjustments in our investments as well as lower interest related to prior tax positions.Benefit (Provision) for Income TaxesWe recorded an income tax expense of $525 million for the year ended December 31, 2025, which reflects an effective tax rate of 19.7% compared to an expense of $545 million (17.6%) for the year ended December 31, 2024.
2025 2024$ % $ %Statutory income tax rate in the Netherlands 687 25.8 800 25.8
Foreign tax effects
United States
Statutory tax rate difference between United States and the Netherlands (34) (1.3) (52) (1.7)
R&D tax credits (47) (1.8) (59) (1.9)
Foreign-derived intangible income (67) (2.5) (127) (4.1)
Other 20 0.8 10 0.3
Taiwan 25 0.9 * *
Other foreign jurisdictions 16 0.6 27 0.9
Effect of Cross-border Tax Laws 16 0.6 23 0.7
Tax Credits (8) (0.3) (8) (0.3)
Changes in Valuation Allowances 1 — (2) (0.1)
Nontaxable or Nondeductible Items
Netherlands tax incentive (99) (3.7) (113) (3.6)
Other 13 0.5 19 0.6
Changes in Unrecognized Tax Benefits 7 0.3 28 0.9
Other Adjustments (5) (0.2) (1) —
Effective Tax Rate 525 19.7 545 17.6
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* The amount of the individual reconciling item during the year does not meet the 5% disaggregation threshold and is included in "Other foreign jurisdictions"
The effective income tax rate for 2025 was 19.7% compared to 17.6% for 2024. The increase was primarily driven by a different mix of income tax expense across our operating jurisdictions, as well as lower U.S. and NL tax incentives in 2025 due to a decrease in qualifying income and R&D expenses. In addition, the One Big Beautiful Bill Act was enacted in the U.S., which reduced the amount of claimable R&D tax credits. Taiwan also had higher tax expense in 2025 due to less undistributed earnings being considered indefinitely reinvested due to changes in the supply chain. These increases were partially offset by tax benefits from settlements with tax authorities.Results Relating to Equity-accounted InvesteesResults relating to equity-accounted investees amounted to a loss of $70 million in 2025, whereas in 2024 results relating to equity-accounted investees amounted to a loss of $12 million. For the year ended December 31, 2025, results relating to equity-accounted investees include the impairment of our equity method investment SigmaSense and the loss on the sale of our equity method investment Smart Growth Fund.Non-controlling InterestsNon-controlling interests are related to the third-party share in the results of consolidated companies, predominantly SSMC. Their share of non-controlling interests amounted to a profit of $47 million for the year ended December 31, 2025, compared to a profit of $32 million for the year ended December 31, 2024.Financial Condition, Liquidity and Capital ResourcesWe derive our liquidity and capital resources primarily from our cash flows from operations. We continue to generate strong positive operating cash flows, and we currently use cash to fund operations, meet working capital requirements, for capital expenditures and for potential common stock repurchases, dividends and strategic investments. Based on past performance and current expectations, we believe that our current available sources of funds (including cash and cash equivalents, RCF Agreement, Commercial Paper Program, EIB facilities, plus anticipated cash generated from operations) will be adequate to finance our operations, working capital requirements, capital expenditures and potential dividends for at least the next year.
Cash
As of December 31, 2025, our cash balance was $3,267 million, a decrease of $25 million compared to our cash balance on December 31, 2024 ($3,292 million), of which $361 million (2024: $261 million) was held by SSMC, our consolidated joint venture company with TSMC. Under the terms of our joint venture agreement with TSMC, a portion of this cash can be distributed by way of a dividend to us, but 38.8% of the dividend will be paid to our joint venture partner. During 2025 and 2024, no dividend was declared. During the first quarter of 2026, SSMC declared a dividend of $150 million, of which $75 million is scheduled for distribution in the first quarter, with 38.8% being paid to our joint venture partner.
Revolving Credit Facility
As at December 31, 2025, our amended and restated Unsecured RCF provides for $2,500 million of senior unsecured revolving credit commitments. We may borrow under this RCF in the future and use the proceeds for general corporate purposes and any other purpose not prohibited by the Amended and Restated Revolving Credit Agreement and related documentation. As of December 31, 2025, we do not have any borrowings under the RCF.
Commercial Paper Program
Under our Commercial Paper Program, we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $2,000 million outstanding at any time, with maturities of up to 397 days from the date of issuance and at a discount from par or at par and bear interest at rates determined at the time of issuance. We may issue notes in the future and use the net proceeds for general corporate purposes. As of December 31, 2025, the Company had no commercial paper notes outstanding.
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EIB Facilities
Our facility agreements with the European Investment Bank (EIB) provide for an aggregate €1,000 million in unsecured senior loan facilities, the proceeds from which are expected to fund the research, development and innovation of semiconductor devices, technologies and solutions in five European countries. Borrowings on these facilities may be denominated in Euro or U.S. Dollar. See Financing Activities further below. As of December 31, 2025, the Company had a principal amount of $670 million outstanding under the EIB loan Facility A with a maturity of December 2030 and a fixed annual interest rate of 4.45% and a principal amount of $370 million outstanding under the EIB loan Facility B with a maturity of February 2031 and a fixed annual interest rate of 4.709%.Capital return
The common stock repurchase activity was as follows:($ in millions, unless otherwise stated) 2025 2024
Shares repurchased 4,357,898 5,726,770
Cost of shares repurchased 899 1,373
Average price per share $206.29 $239.74
Under Dutch corporate law and our articles of association, NXP may acquire its own shares if the general meeting of shareholders has granted the board of directors the authority to effect such acquisitions. It is our standard practice to request at our annual general meeting of shareholders (the “AGM”) every year to renew this authorization for a period of 18 months from the AGM. For repurchases of shares in 2024 and 2025, the board of directors made use of the authorizations renewed by the AGM on May 24, 2023, May 29, 2024, and June 11, 2025, respectively. Our board of directors has approved the purchase of shares from participants in NXP's equity programs to satisfy participants' tax withholding obligations ("trade for tax") and this authorization will remain in effect until terminated by the board of directors. In January 2022, the board of directors approved the repurchase of additional shares up to a maximum of $2 billion (the "2022 Share Repurchase Program") and in August 2024, the Board approved the repurchase of additional shares up to a maximum of $2 billion (the "2024 Share Repurchase Program"). During the fiscal year ended December 31, 2024, NXP repurchased 5.7 million shares, for a total of approximately $1.4 billion under the trade for tax and 2022 Share Repurchase Programs and during the fiscal year ended December 31, 2025, NXP repurchased 4.4 million shares, for a total of approximately $0.9 billion under the trade for tax, 2022 and 2024 Share Repurchase Programs. Under Dutch tax law, the repurchase of a company’s shares by an entity domiciled in the Netherlands results in a taxable event (unless exemptions apply). The tax on the repurchased shares is attributed to the shareholders, with NXP making the payment on the shareholders’ behalf. As such, the tax on the repurchased shares is accounted for within stockholders’ equity.
Subject to Dutch corporate law and our articles of association, the board of directors of NXP may cancel shares acquired if authorized by the general meeting of shareholders. As with repurchases of our shares, it is our standard practice to request at our AGM every year to renew this authorization for a period of 18 months from the AGM. The board of directors did not make use of the authorization during the fiscal year ended December 31, 2025.
Under our Quarterly Dividend Program, interim dividends of $1.014 per ordinary share were paid on April 9, 2025 ($257 million), dividends of $1.014 per ordinary share were paid on July 9, 2025 ($256 million), dividends of $1.014 per ordinary share were paid on October 8, 2025 ($256 million) and dividends of $1.014 per ordinary share were paid on January 7, 2026 ($256 million).
2025 2024
Dividends declared (per share) 4.056 4.056
Dividends declared (in millions) 1,025 1,035
45DebtOur total debt, inclusive of aggregate principal, unamortized discounts, premiums, debt issuance costs and fair value adjustments, amounted to $12,222 million as of December 31, 2025, an increase of $1,368 million compared to December 31, 2024 ($10,854 million).
As of December 31, 2025, the Company had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $11,250 million (collectively the “Notes”), with $1,250 million payable within 12 months. Future interest payments associated with the Notes total $2,874 million, with $409 million payable within 12 months.
As of December 31, 2025, the Company had outstanding loans with the EIB under the EIB Facilities with maturities in 2030 and 2031 for a principal amount of $1,040 million. Future interest payments associated with the EIB loans total $241 million, with $47 million payable within 12 months.
The Company had a net debt position (see section Use of Certain Non-GAAP Financial Measures) at December 31, 2025, of $8,955 million compared to $7,562 million as of December 31, 2024.
We may from time to time continue to seek to retire or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise.Additional capital requirementsWe believe our current positions in cash and cash equivalents, together with our expected cash flow generated from operations and our expected financing activities, will satisfy our working and other capital requirements for at least the next 12 months based on our current business plans. Recent and expected working and other capital requirements, in addition to the above matters, also include the items described below:
• The Company maintains purchase commitments with certain suppliers, primarily for raw materials, semi-finished goods and manufacturing services and for some non-production items. Purchase commitments for inventory materials are generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time horizon can vary for different suppliers. As of December 31, 2025, the Company had purchase commitments, other than commitments directly with our foundry joint ventures, of $3,087 million, of which $1,423 million is expected to be paid in the next 12 months. We expect operating cash outflows to remain elevated as we make payments under these purchase agreements.
• The Company has committed to invest €500 million, which translated to $587 million, in the equity of the recently founded company ESMC. As per the end of the reporting date, NXP has invested $183 million. The remaining $404 million is expected to be invested over the coming four years, of which approximately $65 million is expected to be paid in the next 12 months.
• The Company has committed to invest approximately $1,600 million in equity of the recently founded company VSMC. As per the end of the reporting date, NXP has invested $631 million. The remaining $969 million is expected to be invested over the coming two years, of which approximately $512 million is expected to be paid in the next 12 months. In addition, NXP has committed to contribute an additional $1,200 million to support the long-term capacity infrastructure. As per the end of the reporting date, NXP has contributed $855 million. The remaining $345 million is expected to be contributed in the next 12 months. Furthermore, NXP has an agreed purchase commitment with VSMC that over the lifetime of the factory the minimal loading will be between 80% - 90%, resulting in a total purchase commitment of approximately $14,096 million that is expected to be purchased over 37 years once wafer production starts.
• Amounts related to future lease payments for operating lease obligations at December 31, 2025, totaled $315 million, with $69 million expected to be paid within the next 12 months.
• The Company enters into certain technology license arrangements which are used in conjunction with research and development activities for product development. Payments for these technology licenses are made over varying time periods. Outstanding unpaid balances for technology licenses total $270 million as of December 31, 2025, of which $135 million is expected to be paid in the next 12 months.
• Cash outflows for capital expenditures were $397 million in 2025, compared to $727 million in 2024. We expect to maintain similar levels of capital expenditures as a percentage of revenue in 2026 consistent with our long-term financial model, given our focus on external investments in foundry partners while still supporting current and future manufacturing and production capacity needs.
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• Our research and development expenditures were $2,360 million in 2025 and $2,347 million in 2024, and we expect to maintain similar levels of investment in research and development as a percentage of revenue in 2026.
From time to time, we engage in discussions with third parties regarding potential acquisitions of, or investments in, businesses, technologies and product lines. Any such transaction could require significant use of our cash and cash equivalents or require us to arrange for new debt and equity financing to fund the transaction. Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions. In the future, we may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness. Our business may not generate sufficient cash flow from operations, or we may not have enough capacity under the RCF Agreement, EIB Facility Agreements, Commercial Paper Program, or from other sources in an amount sufficient to enable us to repay our indebtedness, including outstanding commercial paper notes, and borrowings under the EIB Facilities and RCF Agreements, the unsecured notes or to fund our other liquidity needs, including working capital and capital expenditure requirements. In any such case, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. See Part I, Item 1A. Risk Factors .
2025 Financing Activities
On January 13, 2025, NXP B.V. entered into a facility agreement with the European Investment Bank (“EIB Facility B”), which provides for a €360 million unsecured senior loan facility. The proceeds from borrowings under the EIB Facility B are expected to be used to fund the research, development and innovation of semiconductor devices, technologies and solutions in five European countries.
On May 1, 2025, we repaid the $500 million aggregate principal amount of outstanding 2.7% senior unsecured notes due 2025 at maturity using available cash.
On August 19, 2025, NXP B.V., together with NXP Funding LLC and NXP USA, Inc., issued $500 million of 4.3% senior unsecured notes due August 19, 2028, $300 million of 4.85% senior unsecured notes due August 19, 2032, and $700 million of 5.25% senior unsecured notes due August 19, 2035.
2024 Financing activities
On November 21, 2024, NXP B.V., NXP Funding LLC and NXP USA Inc. entered into definitive documentation to establish an unsecured Commercial Paper Program under which, on a joint and several basis, short-term, unsecured commercial paper notes may be issued. Amounts available under the Commercial Paper Program may be borrowed, repaid, and re-borrowed from time to time, with the aggregate principal amount of commercial paper notes outstanding under the Commercial Paper Program at any time not to exceed $2,000 million. The net proceeds of issuances of the commercial paper notes are expected to be used for general corporate purposes.
On November 22, 2024, NXP B.V. entered into a facility agreement with the European Investment Bank, (“EIB Facility A”), which provides for a €640 million unsecured senior loan facility. The proceeds from borrowings under the EIB Facility A are expected to be used to fund the research, development and innovation of semiconductor devices, technologies and solutions in five European countries.Cash flowsOur cash and cash equivalents in 2025 decreased by $31 million (excluding the effect of changes in exchange rates on our cash position of $6 million) as follows:
47($ in millions) Year ended December 31,2025 2024
Net cash provided by (used for) operating activities 2,820 2,782
Net cash (used for) provided by investing activities (2,357) (686)
Net cash provided by (used for) financing activities (494) (2,662)
Increase (decrease) in cash and cash equivalents (31) (566)• Cash Flow from Operating ActivitiesFor the year ended December 31, 2025, our operating activities provided $2,820 million in cash. This was primarily the result of net income of $2,068 million, adjustments to reconcile the net income of $1,339 million and changes in operating assets and liabilities of $(613) million. Adjustments to net income include offsetting non-cash items, such as depreciation and amortization of $832 million, share-based compensation of $462 million, and results relating to equity-accounted investees of $70 million. Changes in operating assets and liabilities were primarily driven by a $308 million increase in inventories in order to align inventory on hand with expected demand, $212 million increase in other non-current assets due to payments to secure production supply with multiple vendors (driven primarily to support the long-term capacity infrastructure of VSMC), and $50 million decrease in accounts payable and other liabilities due primarily from payments related to the settlement of clean room cases.
For the year ended December 31, 2024, our operating activities provided $2,782 million in cash. This was primarily the result of net income of $2,542 million, adjustments to reconcile the net income of $1,151 million and changes in operating assets and liabilities of $(923) million. Adjustments to net income include offsetting non-cash items, such as depreciation and amortization of $925 million, share-based compensation of $461 million, a loss on equity securities of $18 million, results relating to equity-accounted investees of $12 million and changes in deferred taxes of $(272) million. Changes in operating assets and liabilities were primarily driven by a $222 million increase in inventories in order to align inventory on hand with expected demand, $207 million increase in receivables and other current assets due to the related timing of cash collection (driven primarily by distributors), $188 million decrease in accounts payable and other liabilities as a result of timing related to payments and lower purchases, and $306 million increase in other non-current assets due to payments to secure production supply with multiple vendors (driven primarily by payments of $275 million to support the long-term capacity infrastructure of VSMC).• Cash Flow from Investing ActivitiesNet cash used for investing activities amounted to $2,357 million for the year ended December 31, 2025 and principally consisted of the cash outflows from the purchase of interests in business (net of cash acquired) of $1,175 million (mainly driven by the acquisitions of TTTech Auto for $675 million, Kinara of $283 million, Aviva Links of $202 million), purchase of investments of $649 million (driven primarily by the capital contributions of $491 million into VSMC and approximately $92 million into ESMC), capital expenditures of $397 million, and $140 million for the purchase of identified intangible assets.
Net cash used for investing activities amounted to $686 million for the year ended December 31, 2024 and principally consisted of the cash outflows for capital expenditures of $727 million, $149 million for the purchase of identified intangible assets, and $260 million for the purchase of investments (driven primarily by the capital contributions of approximately $80 million into ESMC and approximately $140 million into VSMC); partially offset by the $409 million for the proceeds of short-term deposits and $30 million for the advance payment from sale of property, plant and equipment.• Cash Flow from Financing ActivitiesNet cash used for financing activities was $494 million for the year ended December 31, 2025. This was primarily driven by the dividend payment to common stockholders of $1,025 million, purchase of treasury shares and restricted stock unit holdings of $899 million, and repurchase of long-term debt of $500 million; partially offset by the $1,868 million proceeds from issuance of long-term debt and $83 million proceeds from the issuance of common stock through stock plans. In addition, we issued commercial paper notes for $2,426 million during the year, which were fully repaid by December 31, 2025.
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Net cash used for financing activities was $2,662 million for the year ended December 31, 2024. This was primarily driven by the repurchase of long-term debt of $1,000 million, the dividend payment to common stockholders of $1,038 million, and purchase of treasury shares and restricted stock unit holdings of $1,373 million; partially offset by the $670 million proceeds from issuance of long-term debt and $82 million proceeds from the issuance of common stock through stock plans.Information Regarding Guarantors of NXP (unaudited)
Summarized Combined Financial Information for Guarantee of Securities of SubsidiariesAll debt instruments are guaranteed, fully and unconditionally, jointly and severally, by NXP Semiconductors N.V. and issued or guaranteed by NXP USA, Inc., NXP B.V. and NXP Funding LLC, (together, the “Subsidiary Obligors” and together with NXP Semiconductors N.V., the “Obligor Group”). Other than the Subsidiary Obligors, none of the Company’s subsidiaries (together the “Non-Guarantor Subsidiaries”) guarantee the Notes. The Company consolidates the Subsidiary Obligors in its consolidated financial statements and each of the Subsidiary Obligors are wholly owned subsidiaries of the Company.All of the existing guarantees by the Company rank equally in right of payment with all of the existing and future senior indebtedness of the Obligor Group. There are no significant restrictions on the ability of the Obligor Group to obtain funds from respective subsidiaries by dividend or loan.
The following tables present summarized financial information of the Obligor Group on a combined basis, with intercompany balances and transactions between entities of the Obligor Group eliminated and investments and equity in the earnings of the Non-Guarantor Subsidiaries excluded. The Obligor Group’s amounts due from, amounts due to, and intercompany transactions with Non-Guarantor Subsidiaries have been disclosed below the table, when material.
Summarized Statements of Income($ in millions) December 31, 2025
Revenue 6,791
Gross Profit 3,137
Operating income 826
Net income 5Summarized Balance Sheets
As of($ in millions) December 31, 2025
Current assets 3,182
Non-current assets 12,461
Total assets 15,643
Current liabilities 2,044
Non-current liabilities 11,348
Total liabilities 13,392
Obligor's Group equity 2,251
Total liabilities and Obligor's Group equity 15,643
NXP Semiconductors N.V. is the head of a fiscal unity for the corporate income tax and VAT that contains the most significant Dutch wholly owned group companies. The Company is therefore jointly and severally liable for the tax
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liabilities of the tax entity as a whole, and as such the income tax expense of the Dutch fiscal unity has been included in the net income of the Obligor Group.
The financial information of the Obligor Group includes sales executed through a Non-Guarantor Subsidiary single-billing entity as a sales agent on behalf of an entity in the Obligor Group. The Obligor Group has sales to non-guarantors (2025: $723 million). The Obligor Group has amounts due from equity financing (2025: $5,520 million) and due to debt financing (2025: $2,695 million) with non-guarantor subsidiaries.Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our Consolidated Financial Statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain and based on information available when the estimates were made. In the following section, we discuss our most critical accounting estimates and the judgments involved.
Business combinations
In accounting for acquisitions, we apply ASC 805, which requires identifying and measuring the fair value of acquired assets and liabilities, including intangible assets, as of the acquisition date. Determining these fair values involves significant estimates and assumptions, including discount rates, valuation models, and the expected future economic benefits of acquired technologies, in-process research and development and customer relationships. These judgments directly affect the valuation of intangible assets recognized in a business combination and therefore represent a critical accounting estimate. Assumptions such as projected future cash flows, economic and industry conditions, market segment growth rates and useful lives require significant judgment and are inherently uncertain. Changes in these assumptions may materially impact the amounts recognized. In periods following an acquisition, updates to assumptions may result in adjustments to provisional amounts during the measurement period.InventoriesWe regularly review our inventories and write down our inventories for estimated losses due to obsolescence. This allowance is determined for groups of products based on sales of our products in the recent past and/or projected future demand. Future demand is affected by market conditions, technological obsolescence, new products and strategic plans, each of which is subject to change with little or no forewarning.GoodwillGoodwill is required to be assessed for impairment at least once annually, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of a reporting unit’s goodwill. Such events or changes in circumstances can include significant changes in business climate, operating performance or competition, or upon the disposition of a significant portion of a reporting unit. A significant amount of judgment is involved in determining if an indicator of impairment has occurred between annual test dates. We perform impairment tests using a fair value approach when necessary. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, including projected future cash flows, discount rates based on weighted average cost of capital and future economic and market conditions. We base our fair-value estimates on assumptions we believe to be reasonable. Actual cash flow amounts for future periods may differ from estimates used in impairment testing.Impairment or disposal of identified long-lived assetsWe perform reviews of long-lived assets including property, plant and equipment, and intangible assets subject to amortization, whenever facts and circumstances indicate that the useful life is shorter than what we had originally
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estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of the long-lived assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Impairment losses, if any, are based on the excess of the carrying amount over the fair value of those assets. Long-lived assets to be disposed of by sale are reported at the lower of their carrying amounts or their estimated fair values less costs to sell and are not depreciated.
The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. Future values include estimates of future cash flows and estimates of fair value. These assumptions and estimates can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for specific product lines.Revenue recognitionIn determining the transaction price of contracts with customers, the Company evaluates whether the price is subject to refund or adjustment to determine the consideration to which the Company expects to be entitled. Variable consideration is estimated and includes the impact of discounts, price protection, product returns and distributor incentive programs. The estimate of variable consideration is dependent on a variety of factors, including contractual terms, analysis of historical data, current economic conditions, industry demand and both the current and forecasted pricing environments.
For some sales to distributors, contractual arrangements are in place which allow these distributors to return products if certain conditions are met. These return rights are a form of variable consideration and are estimated using the most likely method based on historical return rates in order to reduce revenues recognized. However, long notice periods associated with these announcements prevent significant amounts of product from being returned. For sales where return rights exist, the Company has determined, based on historical data, that only a small percentage of the sales of this type to distributors is actually returned. Sales to most distributors are made under programs common in the semiconductor industry whereby distributors receive certain price adjustments to meet individual competitive opportunities. These programs may include credits granted to distributors, or allow distributors to return or scrap a limited amount of product in accordance with contractual terms agreed upon with the distributor, or receive price protection credits when our standard published prices are lowered from the price the distributor paid for product still in its inventory. In determining the transaction price, the Company considers the price adjustments from these programs to be variable consideration that reduce the amount of revenue recognized. The Company’s policy is to estimate such price adjustments using the most likely method based on rolling historical experience rates, as well as pricing in the distribution channel for distributors who participate in our volume rebate incentive program. We continually monitor the actual claimed allowances against our estimates, and we adjust our estimates as appropriate to reflect trends in pricing environments and inventory levels. The estimates are also adjusted when recent historical data does not represent anticipated future activity. Historically, actual price adjustments for these programs relative to those estimated have not materially differed.Income taxesThe application of tax laws and regulations to calculate our tax liabilities is subject to legal and factual interpretation, judgment, and uncertainty in a multitude of jurisdictions. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. For each jurisdiction, we recognize a tax liability and/or asset based on our best estimate of these technical merits.Use of Certain Non-GAAP Financial MeasuresNon-GAAP Financial Measures
In addition to providing financial information on a basis consistent with U.S. generally accepted accounting principles (“US GAAP” or “GAAP”), NXP also provides selected financial measures on a non-GAAP basis which
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are adjusted for specified items. The adjustments made to achieve these non-GAAP financial measures or the non-GAAP financial measures as specified are described below, including the usefulness to management and investors.
In managing NXP’s business on a consolidated basis, management develops an annual operating plan, which is approved by our Board of Directors, using non-GAAP financial measures. In measuring performance against this plan, management considers the actual or potential impacts on these non-GAAP financial measures from actions taken to reduce costs with the goal of increasing our gross margin and operating margin and when assessing appropriate levels of research and development efforts. In addition, management relies upon these non-GAAP financial measures when making decisions about product spending, administrative budgets, and other operating expenses. We believe that these non-GAAP financial measures, when coupled with the GAAP results and the reconciliations to corresponding GAAP financial measures, provide a more complete understanding of the Company’s results of operations and the factors and trends affecting NXP’s business. We believe that they enable investors to perform additional comparisons of our operating results, to assess our liquidity and capital position and to analyze financial performance excluding the effect of expenses unrelated to core operating performance, certain non-cash expenses and share-based compensation expense, which may obscure trends in NXP’s underlying performance. This information also enables investors to compare financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management.
The presentation of these and other similar items in NXP’s non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent, or unusual. These non-GAAP financial measures are provided in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
Non-GAAP Adjustment or Measure Definition Usefulness to Management and Investors
Purchase price accounting effects Purchase price accounting ("PPA") effects reflect the fair value adjustments impacting acquisition accounting and other acquisition adjustments charged to the Consolidated Statement of Operations. This typically relates to inventory, property, plant and equipment, as well as intangible assets, such as developed technology and marketing and customer relationships acquired. The PPA effects are recorded within both cost of revenue and operating expenses in our US GAAP financial statements. These charges are recorded over the estimated useful life of the related acquired asset, and thus are generally recorded over multiple years. We believe that excluding these charges related to fair value adjustments for purposes of calculating certain non-GAAP measures allows the users of our financial statements to better understand the historic and current cost of our products, our gross margin, our operating costs, our operating margin, and also facilitates comparisons to peer companies.
Restructuring Restructuring charges are costs associated with a restructuring plan and are primarily related to employee severance and benefit arrangements. Charges related to restructuring are recorded within both cost of revenue and operating expenses in our US GAAP financial statements We exclude restructuring charges, including any adjustments to charges recorded in prior periods, for purposes of calculating certain non-GAAP measures because these costs do not reflect our core operating performance. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends.
Share-based compensation Share-based compensation consists of incentive expense granted to eligible employees in the form of equity based instruments. Charges related to share-based compensation are recorded within both cost of revenue and operating expenses in our US GAAP financial statements. We exclude charges related to share-based compensation for purposes of calculating certain non-GAAP measures because we believe these charges, which are non-cash, are not representative of our core operating performance as they can fluctuate from period to period based on factors that are not within our control, such as our stock price on the dates share-based grants are issued. We believe these adjustments provide investors with a useful view, through the eyes of management, of our core business model, how management currently evaluates core operational performance, and additional means to evaluate expense trends.
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Non-GAAP Adjustment or Measure Definition Usefulness to Management and Investors
Other incidentals Other incidentals consist of certain items which may be non-recurring, unusual, infrequent or directly related to an event that is distinct and non-reflective of the Company’s core operating performance. These may include such items as process and product transfer costs, certain charges related to acquisitions and divestitures, litigation and legal settlements, costs associated with the exit of a product line, factory or facility, environmental or governmental settlements, and other items of similar nature. We exclude these certain items which may be non-recurring, unusual, infrequent or directly related to an event that is distinct and non-reflective of the Company’s core operating performance for purposes of calculating certain non-GAAP measures. These adjustments facilitate a useful evaluation of our core operating performance and comparisons to past operating results and provide investors with additional means to evaluate expense trends.
Income tax effect Non-GAAP income tax benefit (provision) is NXP's GAAP income tax benefit (provision) adjusted for the income tax effects of the adjustments to our GAAP measure, including the effects of PPA, restructuring costs, share-based compensation, other incidental items and certain other adjustments to financial income (expense) items. Additionally, adjustments are made for the income tax effect of any discrete items that occur in the interim period. Discrete items primarily relate to unexpected tax events that may occur as these amounts cannot be forecasted (e.g., the impact of changes in tax law and/or rates, changes in estimates or resolved tax audits relating to prior year tax provisions, the excess or deficit tax effects on share-based compensation, etc.). The non-GAAP income tax benefit (provision) is used to ascertain and present on a comparable basis NXP's income tax benefit (provision) after adjustments, the usefulness of which is described within this table.
Free cash flow Free cash flow represents operating cash flow adjusted for net additions to property, plant and equipment. We believe that free cash flow provides insight into our cash-generating capability and our financial performance, and is an efficient means by which users of our financial statements can evaluate our cash flow after meeting our capital expenditure.
Net debt Net debt represents total debt (short-term and long-term) after deduction of cash and cash equivalents and short-term deposits. We believe this measure provides investors with useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect of calculating our net leverage.
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The following are reconciliations of our most comparable US GAAP measures to our non-GAAP measures presented:
($ in millions) Three months ended Full-year
December 31, 2025 September 28, 2025 December 31, 2024 2025 2024
GAAP gross profit $ 1,807 $ 1,787 $ 1,678 $ 6,716 $ 7,119
PPA effects (7) (6) (11) (28) (47)
Restructuring (14) — (21) (79) (28)
Share-based compensation (14) (15) (15) (59) (59)
Other incidentals (71) (2) (64) (84) (79)
Non-GAAP gross profit $ 1,913 $ 1,810 $ 1,789 $ 6,966 $ 7,332
GAAP Gross Margin 54.2 % 56.3 % 53.9 % 54.7 % 56.4 %
Non-GAAP Gross Margin 57.4 % 57.0 % 57.5 % 56.8 % 58.1 %
GAAP research and development $ (665) $ (575) $ (612) $ (2,360) $ (2,347)
Restructuring (89) (1) (50) (100) (57)
Share-based compensation (58) (57) (60) (237) (234)
Other incidentals (4) (2) (5) (14) (6)
Non-GAAP research and development $ (514) $ (515) $ (497) $ (2,009) $ (2,050)
GAAP selling, general and administrative $ (359) $ (286) $ (323) $ (1,204) $ (1,164)
PPA effects — (1) — (1) (2)
Restructuring (74) (2) (41) (82) (40)
Share-based compensation (28) (46) (42) (166) (168)
Other incidentals (15) (14) (12) (64) (45)
Non-GAAP selling, general and administrative $ (242) $ (223) $ (228) $ (891) $ (909)
GAAP operating income (loss) $ 744 $ 893 $ 675 $ 3,047 $ 3,417
PPA effects (41) (38) (39) (151) (185)
Restructuring (177) (3) (112) (261) (125)
Share-based compensation (100) (118) (117) (462) (461)
Other incidentals (92) (19) (122) (143) (181)
Non-GAAP operating income (loss) $ 1,154 $ 1,071 $ 1,065 $ 4,064 $ 4,369
GAAP Operating Margin 22.3 % 28.1 % 21.7 % 24.8 % 27.1 %
Non-GAAP Operating Margin 34.6 % 33.8 % 34.2 % 33.1 % 34.6 %
GAAP Income tax benefit (provision) $ (131) $ (148) $ (77) $ (525) $ (545)
Income tax effect 59 25 87 129 141
Non-GAAP Income tax benefit (provision) $ (190) $ (173) $ (164) $ (654) $ (686)
($ in millions) Three months ended Full-year
December 31, 2025 September 28, 2025 December 31, 2024 2025 2024
Net cash provided by (used for) operating activities $ 891 $ 585 $ 391 $ 2,820 $ 2,782
Net capital expenditures on property, plant and equipment (98) (76) (99) (395) (693)
Non-GAAP free cash flow $ 793 $ 509 $ 292 $ 2,425 $ 2,089
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($ in millions) Three months ended Full-year
December 31, 2025 September 28, 2025 December 31, 2024 2025 2024
Long-term debt $ 10,972 $ 10,971 $ 10,354 $ 10,972 $ 10,354
Short-term debt 1,250 1,264 500 1,250 500
Total debt 12,222 12,235 10,854 12,222 10,854
Less: cash and cash equivalents (3,267) (3,454) (3,292) (3,267) (3,292)
Less: short-term deposits — (500) — — —
Net debt $ 8,955 $ 8,281 $ 7,562 $ 8,955 $ 7,562
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