Good morning, everyone. Welcome to the NXP Semiconductors First Quarter 2020 Earnings Call. With me on the call today from the far corners of the world is Rick Clemmer, NXP's CEO Kurt Sievers, NXP's President and Peter Kelly, our CFO. We're all in remote locations today. So if there's any delay in responding to questions, please bear with us.
The call today is being recorded and will be available for replay from our corporate website. Today's call will include forward looking statements that involve risks and uncertainties that could cause NXP's results to differ materially from management's current expectations. These risks and uncertainties include, but are not limited to, statements regarding the continued impact of the COVID-nineteen pandemic on our business, the macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products and our expectations for our financial results for the Q2 of 2020. Please be reminded that NXP undertakes no obligation to revise or update publicly any forward looking statements. For a full disclosure on forward looking statements, please refer to our press release.
Additionally, we will refer to certain non GAAP financial measures, which are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance. Pursuant to Regulation G, NXP has provided reconciliations of the non GAAP financial measures to the most directly comparable GAAP measures in our Q1 2020 earnings press release, which will be furnished to the SEC on Form 8 ks and is available on NXP's website in the Investor Relations section atnxp.com. Now I'd like to pass it over to Rick Clemmer.
So there might be a problem with Rick's connection. So this is Kurt Kurt Sievers. I will take over from Rick such that we can get started swiftly. So once again, thanks, Jeff, and good day, everybody, on the call. The last several months has been one of the most disruptive periods in the semiconductor industry.
But throughout this current period of widespread and unprecedented disruption due to the COVID-nineteen virus, we've never been as proud as now as of our entire NXP team. They are collectively demonstrating and living our core values during this challenging time as we continue to work to supply our customers and continue to focus on the development of our key programs. We have put a dedicated team in place to focus on the safety of our employees and the management as how our employees can work effectively, remotely and safely on-site when necessary.
Kurt, I'm back
on. All right. So Rick, will you take over?
Yes. Yes, please.
All right. Thanks, Rick.
Thank you. While NXP has long been geographically diverse, we now have over 12,000 of our worldwide team, including 90% plus of our indirect employees that are not in manufacturing, working from home or just recently returned from working from home in China and Korea. Daily, our employees are taking initiative, intentionally collaborating and focusing on delighting our customers. I am heartened to see the genuine engaged curiosity, their desire to solve problems and everyone looking to drive positive outcomes in the respective areas of expertise. And through this all displacing a sense of confidence that we will all successfully get through this.
NXP is structured to adapt, to respond to unknown challenges and to support its people. As an example, our team members are assuring that our customers in the healthcare and medical areas have critical MCU and sensor products to enable the increased production of respirators and other related medical equipment, though this is not a sufficient amount of revenue. Globally, we are donating PPE material where it is needed and providing laptops to students, NGOs and nursing home patients. Our team members are also independently raising funds and donating back in their local communities to help the less privileged. From an operational perspective, all of our manufacturing facilities are up and running, although we did previously have some limited government ordered closures.
Our manufacturing plant in China has continued to operate through the entire period. We have not experienced any major virus related supply issues. We have been extremely fortunate that the virus has not materially impacted our broad employee base. We will continue to closely monitor all government orders and take a cautious approach to allowing employees to return from working from home. The safety of our employees remains our top priority.
Therefore, we will not rush to return to the opening so that we can limit the number of employees on-site allowing for continued social distancing, especially where we have manufacturing and other operations combined on a single site. Turning to how we view the current business environment. This crisis is unlike anything previously experienced by the semiconductor industry with bracket changing characteristics, making it hard to identify true demand indicators. We will continue as we have always done in the past to share information openly to enable all of our stakeholders to understand the conditions that we are operating. We currently find ourselves attempting to make accurate projections of true OEM customer demand.
This is especially true in global automotive markets where we have gone to our customers and worked with them to reduce their demand signals to more accurately reflect true auto OEM requirements. In North America and Europe, automotive OEM and Tier 1 suppliers currently have full or partial factory shutdowns and extended supply chains, although they are beginning to identify plans for reopening. It is easy to completely focus on dramatic and negative impacts of the virus. However, we must also be aware of and ensure
it seems that Rick's line is broken again. I will pick up here. It's easy to completely focus on the dramatic and negative impacts of the virus. However, we must also be aware and ensure that we do not miss possible opportunities. And as a good example, it's good to see that in the last 2 weeks, data for car sales in China show they are above the same period last year.
We also hear reports of people buying their first vehicle as they do not want to go back to mass transit with the fear overhang from the virus. However, the reopening of the Tier 1 and OEM manufacturing plants continues to be uncertain, and it is this significant uncertainty that is making our planning so difficult right now. At the same time, the demand environment in China has clearly improved in the industrial and mobile end markets. We are encouraged with the increase in distribution sell through in the recent weeks, and we will continue to closely monitor the sustainability of these trends. The big question though is the impact from the economic weakness throughout the rest of the world on consumption, and hence, the ultimate impact it may have on demand in China.
Considering all of these indicators does create conflicting signals. We are attempting to maximize our flexibility to ensure that we adequately support our customers' true demand, while at the same time reducing our manufacturing supply risk and ultimately avoiding excess inventory. Now more than ever, maintaining close, constant communications with our customers is really critical to the balance of our supply chain. We are cautiously optimistic as we see early Q3 demand trends, which indicate a slightly sequential improvement. Combined with the benefits from the planned ramp of NXP specific programs.
During any economic downturn, investor attention always turns to the sustainability or robustness of a company's financial performance. For those of you who have followed NXP for some time now, we view one of our inherent skills as keeping a steady hands on the financial and operational levers we can control. We are not unemotional, but in challenging times like these, we have a cultural bias towards cost consciousness. We are not making knee jerk decisions, but taking an active review of all areas of discretionary spending, while simultaneously maintaining critical investments in areas that will assure NXP's long term success. Our business model is solid, and we continue to have ample financial liquidity and strength to weather the current unpredictable environment.
In closing, we are extremely proud of the adaptability of all our teams during this challenging period.
And we
will continue to succeed and are focused on driving positive results for all of our stakeholders. And at this point, I move on actually to what is my original script here. So that was Rick's part. And I will start to review the specifics of our quarter 1 results and at the same time provide an outlook for quarter 2. We find ourselves navigating a really, really fluid and challenging period due to the COVID-nineteen virus.
As the year began, we had an incrementally positive outlook for 2020 as customer and engagement with our NXP portfolio and product roadmap continue to be really positive. However, as the breadth of COVID-nineteen virus impact evolved in mid February, we did find ourselves shifting from dealing with what we assumed were temporary supply chain disruptions post Chinese Lunar New Year. And we had to adapt to a much wider, more disruptive broad base of shutdowns of our customers' manufacturing facilities increasingly also outside China. This has had a direct ripple effect throughout the supply chains we are exposed to. While this is making our short term outlook more uncertain, we do continue to execute consistently to our long term strategy, deeply engaged with a sharp focus on enabling our customer success albeit from a virtual distance.
Now let me turn to our results. Q1 revenue came in below our original guidance. Many of the automotive OEMs initiated factory shutdowns combined with order pushouts from both industrial and mobile customers. Taken together, NXP delivered revenue of $2,020,000,000 about $204,000,000 below the midpoint of our original guidance range. Our non GAAP operating margin was 24.8%, about 280 basis points below guidance as a result of lower operating profit fall through on the reduced revenue levels.
Let me turn to the specific trends in our focus end markets, starting with automotive. Revenue in automotive was $994,000,000 down 4% versus the year ago and showing 9% sequential decline. In Industrial and IoT, our revenue was $376,000,000 up 2% versus the year ago period and down 9% sequentially. In mobile, revenue was $247,000,000 up 2% versus the year ago period and down 26% sequentially. And lastly, communication infrastructure and other, our revenue was 404,000,000 dollars down 10% year on year and 12% sequentially.
Now before I'm turning to the specifics of our quarter 2 expectations, I'd like to make a few comments. Our revenue guidance range for Q2 is wider than normal, which is a reflection of what we view as an uncertain and highly fluid demand environment. We will provide as much transparency as possible, while we are cognizant that our ability to accurately predict the future is limited. As I said before, many of the ultimate end customers of our products, like the automotive OEMs in Europe and North America, are still partially closed, but just coming gradually back to work. Therefore, the customer demand signals, which we rely on throughout the supply chain, need to be recalibrated to true end market demand.
We are anticipating this recalibration should occur over the next few months. From a positive viewpoint, the supply chain inventory rationalization trends we witnessed through 2019 have essentially played out, both with our direct customers and also those served through global distribution. And therefore, once we begin to see demand signals recalibrated to our end customers, we are assuming there should not be a significant lag effect due to any excess supply chain inventory. And we have continued to apply the highest discipline to our distributor channel inventory as we held back about 1 $150,000,000 of shipments to distributors during the Q1. And this is in order to maintain our target channel inventory metric of 2.4 months of supply.
With that preamble, we are guiding quarter 2 revenue at $1,800,000,000 down about 19% versus quarter 2 2019, within the range of down 14% to 23% year on year. From a sequential perspective, this represents a decline of about 11% at the midpoint versus the prior quarter. At the midpoint, we are anticipating the following year on year trends in our business. Automotive is expected to be down about 30% versus quarter 2 twenty nineteen and down in the high 20% range versus quarter 1 twenty twenty. Industrial and IoT is expected to be up low single digits versus quarter 2 'nineteen and up mid single digits versus quarter 1 2020.
Mobile is expected to be down in the mid teens range versus quarter 2 2019 and up low single digits versus quarter 1 2020. And finally, communication infrastructure and other is expected to be down in the mid teens range versus quarter 2 2019 and up mid single digits versus quarter 1 2020. In summary, this is an unprecedented period for society, for our industry, for our customers and for NSP. Our number one priority is to assure the health and the safety of all our NXP team members, while facilitating the best possible business continuity with a customer focus on supply chain and execution. We are extremely proud of the huge engagement and flexibility of all NXP employees.
And as I previously mentioned, we do not have any unique insights as to when this challenging period will subside, but we do continue to have ample financial liquidity and strength to weather the current environment. While we are actively reviewing all areas of discretionary spending, we do continue to maintain critical investments in the areas that will assure NXP's long term success in our chosen strategy. Our focused investments in leading edge new products and customer engagements in fast growing segments such as ADAS and automotive electrification, in secure connected edge processing for the IoT and the secure ultra wideband are all very durable and enjoy significant design win traction. Once this pandemic is under control, NXP will emerge strongly and will resume its growth within its strategic focus areas, consistent with our prior long term expectations. We execute consistently, and we are committed to our long term strategy.
And we continue to be deeply engaged with and sharply focused on enabling our customers' success. And at this point, I would like to pass the call to Peter for a review of our financial performance. Peter?
Thank you, Kurt, and good morning to everyone on today's call. As Kurt already covered the drivers of the revenue during the quarter and provided our revenue outlook for the Q2, I'll move to the financial highlights. In summary, our Q1 revenue performance was well below what we'd planned as a result of the COVID virus. As the world struggled to cope with the significant disruption the virus caused, we saw approximately $200,000,000 of our revenue disappear from the quarter. This significant reduction to revenue fell through to non GAAP gross profit and non GAAP operating profit with a fall through on gross margin slightly offset at the operating profit level by a reduction in OpEx, a truly stunning turn of events.
Now moving to the details of the Q1. Total revenue was $2,020,000,000 down 3% year on year and $204,000,000 below the midpoint of our original guidance. We generated $1,050,000,000 in non GAAP gross profit and reported a non GAAP gross margin of 51 0.8%, down about 90 basis points year on year and 140 basis points below the midpoint of our guidance. Total non GAAP operating expenses were $545,000,000 essentially flat year on year and better by $18,000,000 from the 4th quarter. This was $28,000,000 below the midpoint of our guidance.
From a total operating profit perspective, non GAAP operating profit was $502,000,000 and non GAAP operating margin was 24.8 percent, down about 190 basis points year on year as a result of the lower revenue. Non GAAP financial expense was $75,000,000 Cash taxes from ongoing operations were $28,000,000 and non controlling interest were $8,000,000 all slightly better than our guidance. Stock based compensation, which is not included in our non GAAP earnings, was $107,000,000 Now I'd like to turn to the changes in our cash and debt. Our total debt at the end of the first quarter was $7,370,000,000 flat sequentially, and our ending cash position was $1,080,000,000 up $34,000,000 The resulting net debt was $6,290,000,000 and we exited the quarter with a trailing 12 month adjusted EBITDA of $3,050,000,000 Our ratio of net debt to trailing 12 month adjusted EBITDA at the end of Q1 was 2.1x and our non GAAP trailing 12 month adjusted EBITDA net interest coverage was 9.6x. As you all know, I typically say that our balance sheet is very strong and our liquidity is excellent.
We're proud of the fact that we're an investment grade company. We achieved this by having a business that generates significant cash, by having a very large revenue stream and by having strong financial discipline, including not extending ourselves when things look rosy. I'm really pleased to say that this is exactly the environment when having a strong business model and financial discipline pays off. So we continue to have a strong balance sheet and we have excellent liquidity and access to the markets that a strong investment grade company has. During the Q1, we paid $105,000,000 in cash dividends and repurchased $355,000,000 of our shares.
You'll have noted a small increase in our leverage in Q1 over Q4. This is driven by a reduction of trailing 12 month adjusted EBITDA and our leverage will increase again in Q2 to 2.2 times driven by our latest guidance for the quarter. As such, we'll temporarily suspend our buyback until our trailing 12 month adjusted EBITDA ratio improves to the level where we can once again be at the 2. Times at the 2 times leverage ratio. We will in the meantime continue to pay our quarterly dividend.
Turning to working capital metrics, days of inventory was 113 days, an increase of 11 days sequentially as revenue levels declined. We continue to closely manage our distribution channel with inventory in the channel of 2.4 months, definitely within our long term targets. As Curt noted, we held back about $150,000,000 of orders into distribution to assure our channel inventory metrics remained within our target range. Days receivable were 28 days up 2 days sequentially and days payable were 83 days, an increase of 2 days versus the prior quarter. Taken together, our cash conversion cycle was 58 days, an increase of 11 days versus the prior quarter.
Cash flow from operations was $512,000,000 and net CapEx was $143,000,000 resulting in non GAAP free cash flow of $369,000,000 Turning to our expectations for the Q2. As Curt mentioned, we anticipate 2nd quarter revenue to be about $1,800,000,000 plus or minus about $100,000,000 a wider than normal range considering the uncertain environment we are navigating. At the midpoint, this is down 19% year on year and down 11% sequentially. We expect non GAAP gross margin to be about 48% plus or minus 100 basis points. Operating expenses are expected to be about $523,000,000 plus or minus about $5,000,000 And taken together, we see non GAAP operating margin to be about 19%, plus or minus about 2 40 basis points.
We estimate non GAAP financial expense to be about 80 $2,000,000 and anticipate cash tax related to ongoing operations to be about $17,000,000 Non controlling interest will be about $6,000,000 Finally, I have a few closing comments I'd like to make. Firstly, our gross margin looks weak for the 2nd quarter. About half of the drop is explained by the reduction in revenue and the other half is a result of the fact that we'll be running our internal fabs at a utilization of approximately 50 percent. At this level of utilization, we take additional fixed cost charges in quarter rather than carry them through in inventory to the 3rd quarter. As the global economy starts to correct itself and our revenue reaccelerates, we see no reason why we cannot hit our 55% gross margin target at the $2,400,000,000 level of quarterly revenue.
Secondly, we are closely managing our cash and feel comfortable we will continue to generate cash even at these extremely low revenue levels. As part of this, we've taken down the utilization of our internal factories and are working with our external partners to manage our purchases with them. In fact, the bigger part of the reduction in wafers for this quarter has fallen on our internal fabs. Thirdly, we will continue to carefully manage OpEx levels and minimize any variable costs and in particular incentive payments. Finally, these are very difficult times.
And along with Riff and Kurt, I'd like to thank all my colleagues around the world for their commitment to NXP and doing the right thing for our customers. The current period is unprecedented and is extremely difficult. But for the long run, NXP has the right strategy, is in the right markets and has the right products to win. Before we turn to your questions, I'd like to pass the call back to Kurt for a moment.
Yes. Thanks much, Peter. And I can just also notify everybody that Rick is back on the call now. Before we are moving on to Q and A, I still would like to take the opportunity to express my deep gratitude to Rick. And that is both on behalf of NXP, but also very much personally.
Rick, this appears to be your last NXP earnings call in your capacity as CEO of the company. You have successfully led NXP since being appointed President and CEO back in 2009. And under your leadership, NXP has transformed into a profitable high performance mixed signal leader, definitely with the freescale merger as a very remarkable milestone. And I want to thank you for your many years of hard work and much more importantly for your personal dedication and commitment building NXP into the industry leader we are today. And since I've personally served for the last 10 years as a member of your NXP executive management team, I'd especially like to thank you for your deep trust and for everything
I've
passion to win. And that along with great business acumen and very thoughtful leadership. Given all of that, I am particularly glad and thankful that NXP and I can count on your continued support as a strong and close strategic advisor for the time to come. Thank you once again. And with that, operator, we open the call
our first question comes from the line of Stacy Rasgon with Bernstein Research. Your line is now open.
About the $150,000,000 that you didn't ship in the quarter, Can you give us some feeling for how that splits up by end market? What you're expecting to do with channel inventories into Q2? And if you can give us some color maybe on what the sell in versus sell out was in the quarter into
the channel, that'd be really helpful.
Thanks, Stacy. So the $150,000,000 that we had orders far from our Disney partners that we chose not to ship to be sure that we maintained our distribution inventory at the 2.4 months was probably a higher concentration of industrial, but it was across the board in all areas. So I can't really give you the details, but I would say it has a concentration more on the industrial side and probably less on the other areas. Our intent is to continue to maintain the 2.4 months of inventory. We learned our lesson several years ago associated with this, and we're trying to be sure that we maintain that position and control our inventory commitment into the channel.
So we're actively, as we talked about in the script, working with our customers to be sure that they adjust their demand signals to be sure that we do not increase just the inventory or the work in process inventory with our OEM customers either.
Got it. Thank you. And for my follow-up, I understand the auto decline obviously into Q2, but what's driving the sequential increases in the rest of those businesses? It sounds like it's not it sounds like you don't think it's pull forward just given your commentary on the channel inventory just now. Let me know if that is correct If you could give us any color on what's driving that sequential demand in
the other segments, that would be super helpful.
Sure. So it clearly is not any pull forward that we see. It's based on orders from our customers. On a sequential basis, in Q2, were up sorry, down 11% in total, but actually down 27% in automotive, while we're up 6% in industrial and IoT and 5% in comms and infra and slightly up in mobile. The industrial is we as we said in the script, we've actually seen some strength in China in the sell through.
Clearly, Europe continues to be fairly weak and the U. S. Is also pretty weak, although maybe a little bit of glimmers of improvement in the U. S. But clearly, the key indicator on the industrial side for Q2 is in our China sell through and really what gives us confidence in being able to achieve the 6% sequential growth in industrial and IoT.
And some of that includes some of our new product deployments as well, Stacy.
And our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open.
Thank you for taking my question and congrats to Kurt on the new role and best wishes to Rick on his next adventure. It's been great to work with you. For my first question, I wanted to just dig into the automotive market. I think for Q2, you mentioned automotive sales potentially down about 30%. That is obviously much better than some of the unit trends over down over 40% year on year.
Could you give us some sense of how you are seeing the unit and the content parts of your business play throughout Q2? And importantly, do you think Q2 can mark the trough in your orders business? Because I recall you saying that Q3 could be up slightly sequentially. So does that imply that Q2 is perhaps the trough in your autos business? So just some more color in auto customer engagements would be very helpful.
Thanks, Vivek. This is Rick. Kurt, I'll let you take that.
Yes. Thanks, Vivek. So yes, we have a careful view that Q3 should be slightly up over Q2. Now if you think about automotive specifically, mind you that you can never really track the SAAR on a quarterly basis back to our business. There is too much going on in the supply chains and especially these days.
So it doesn't really work that you take the quarter 2 projected car production, if anybody knows it at all, and hold that back to our revenue. So our revenue forecast in automotive for the Q2 is really just the result of a very careful alignment with our main customers on mostly very application specific products. So it's really just a backlog alignment more than anything else. It's not really tied to VASAAR in that sense. But still, what is important in this period of uncertainty, we do absolutely believe that the content increase story holds.
So that continues also through this period. Secondly, what we have seen in the reports from IHS is that the premium cars are actually going down a little bit less than the average car, which is positively good for the mix given the fact that there is obviously more semiconductors in premium cars. This is a very broad statement. We cannot tie it back to any specific model or any specific product of ours, but that probably is a trend as long as we can see it now. Finally, for the SAAR itself, we continue to use IHS as the guideline.
They just came out actually on April 27, so very fresh with their latest forecast, which is a 22% decline for the year, where indeed they sharply see the biggest year on year decline in the Q2. So for the car production, I would support what you are saying. But again, you cannot 1 on 1 connect this to our revenue.
Got it. And then for my follow-up, maybe Peter, one on gross margins. So clearly, I think you explained the drivers for Q2 for gross margins to get towards 48% or so. So sort of a similar question to the first one. Do you think if, let's say, all else being equal, if you start to see some revenue rebound in Q3 that have we kind of seen the trough in gross margins?
What's on your dashboard to kind of look at the trajectory of gross margins over the next handful of quarters? Thank you.
To be honest, right now and you sort it from the range we gave of revenue, plus or minus $100,000,000 on Q2. It's difficult to really speculate on where we might be in Q3, Q4. As Rick mentioned in his speech, we think we'll be up slightly. I would hope this would be the trough on gross margin, but it really depends on how we right now at these levels, how we load our fabs. So I think it's going to be a tough couple of quarters from a gross margin perspective.
I think the main thing for me is, and maybe this is where you're really going is, as we move up more strongly and we get back to the $2,400,000,000 level, I don't think anything's changed in terms of the structural part of our business. And I still have great confidence we can get to the 55% level in a more normal market. So as our revenue comes back, yes, our gross margin will go up.
Thank you. Thanks for that.
Thank you. And our next question comes from the line of John Pitzer with Credit Suisse. Your line is now open.
Yes. Good morning, guys. Thanks for letting me ask the question. First, Rick, I just wanted to thank you for all the help you've given me personally over the last decade. I really appreciate that.
I know it's been an interesting 10 years. But relative to my kind of first question, I'm just kind of curious, you used the term recalibrating of demand signals a couple of times when talking about the June guidance. I'm just kind of curious to what extent is the June guide kind of a top down view of the world from you versus a bottoms up view, I. E, are your customer bookings actually still coming in stronger than you would have expected given the demand destruction that's likely? And if so, how are you able to kind of under ship to what customers want to prevent inventory?
Well, John, first off, thanks for your comment. It's been fun for the last decade. So on the demand signals, I think what we're really trying to communicate is, as we look at the Tier 1s and obviously the car factory is actually being shut down as well as a lot of the Tier 1, The demand signals haven't been adjusted as much as they should have been. And so we kind of took the lead from the industry customers and aggressively working with them to modify their demand signals to really more accurately reflect the production levels that were taking place. So our intent is to be sure that we try to minimize any inventory, our work inventory builds throughout the process on the OEM side.
We're doing the same thing with our distribution partners. Everyone is struggling to get their hands on what the real demand is with the highly fluid levels of inputs and how things move. But we've aggressively worked with our customers, both OEM as well as even with our distribution partners, to really modify their demand signals. We talked about we could have shipped another $150,000,000 or more to our distribution partners in Q1 based on the orders we had, and we chose not to do that. So we didn't increase our inventory levels in the distribution channel.
So our focus is really ensuring that we maintain the right kind of work in process and distill inventory levels as we go through this process, not to build up the historic semiconductor industry levels that has happened frequently in the past in the industry.
As my follow-up, Kurt, I know you guys are only officially guiding 90 days out, but you're cautiously optimistic commentary around Q3 potentially being up modestly sequentially. Is that mostly an automotive view or is that happening across all of your end markets? And in your prepared comments, you talked about kind of company specific drivers behind that in addition to just sort of general industry recovery. Wondering if you could elaborate on those company specific drivers?
Yes, Sean. I'm happy to do so. So first of all, let me just clarify, indeed the comments about the Q3 slightly up over Q2 is a comment for the entire company, so integrally for the company. I'd say the main reason which gives us some confidence to make that statement is product customer combination specific drivers where we have design wins, which are either starting to ramp or starting to quickly go up when they had started to ramp a little bit earlier already. So I'd say that's the main element, which is then across the known applications which you are aware of.
So clearly, in automotive, I continue to emphasize radar and battery management being in here. Clearly, in IoT Industrial, I would say our crossover processes now more and more along with the connectivity. You remember the assets which we bought from Marvell is playing out nicely together. And in mobile, we have an unbroken continuation of the attach rate or the growth in the attach rate of our mobile wallet. So these are the elements which actually are behind my comments about the Q3, possibly slightly up over Q2.
Perfect. Thanks guys.
Thanks, John.
Thank you. And our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.
Thanks guys. And I want to also congratulate Rick and thank you for all your help over the many years. So I guess my first question is in the second quarter itself, the non automotive side being up, I think Rick you mentioned that you were excited about what was happening initially in China for your industrial and IoT segment. But the other kind of 35% potentially in that quarter, 45% or 40% of the business in mobile and comm infrastructure. Can you just talk a little bit about what's going on in those two segments to drive the increase sequentially?
Sure. The in Q2, our common infra is projected to be up about 5% sequentially, but down 15% year over year. So I think we're still in the process of seeing a little bit of improvement in the 5 gs deployment associated with primarily in China on base stations. And the thing that's really fluid with that is, is they're still working the specifications and the requirements associated with it. So it really is evolving rapidly.
But we see clearly the combination of the businesses that are there, including a little bit of improvement in our network processor area that contributes to that 5% in Q2. In mobile, remember Q2 a year ago, we had a very strong quarter as Huawei really took the mobile wallet down across their product portfolio. But even with that, we'll be up slightly in Q2 in the mobile business. So I think all of that comes back to the fact that we see some real improvement in China in POS that's encouraging and we just have to see how that continues, Ross, as we go forward.
Thanks for that. And then I guess as my follow-up either for you or Kurt on the automotive side of things and maybe aligning to Kurt what you said for the Q3 maybe being up a bit sequentially for the entire company. I just wanted to dive into the kind of the symmetry of how the automotive plants are shut down around the world and then when they turn back on. Obviously, true end demand at the end of day is going to drive how your business grows in there. But I just wanted to see how aligned do you think you are to those factories being turned on and off, especially given the fact that the data points early as they may be out of China for automotive, as you mentioned, were positive.
Is the Q3 going to improve sequentially in automotive just because the factories hopefully will all be turned on globally at that point? Or does it have to wait until true end demand gives us a sign of just how turned on they actually are?
Yes, Ross. It is clearly phase shifted because obviously the biggest auto impact in Q1 was in China, while the European and U. S. Factory shutdowns literally only started in the second half of March, so at the very, very end of Q1 and now hitting in Q2. So while I think it is fair to have some optimism about the industrial automotive activity in quarter 2 in China.
It is really, really hard to say how this is going to play out in Europe and the U. S. I mean, just as an example, we all saw in the press that just this Monday, so yesterday, Volkswagen started to manufacture again. I mean, they just in Germany, they just went back to work. To my understanding, not at full capacity, but this is a gradual increase.
And I think nobody really knows exactly what's the pace of those reopenings and to what capacity level they go under which time frame during the Q2. But clearly, it looks like the most significant car production impact in the Western world fits in the beginning of the Q2, and we have to see how long it takes in the Q2. And that gets me back to what I think I quoted earlier about IHS. Clearly, the Q2 is according to IHS then seeing the biggest decline in car production with quite some improvement in quarter 3 from a car production perspective. Now what Rick said earlier to one of the questions about us being very careful with understanding the end demand, this is exactly coming to this point, Ross.
We try to make sure that what we are shipping to our Tier 1 customers in automotive aligns nicely to the real end demand such that we don't over ship because we learned that lesson 10 years ago. And with that, we should if we do that right and we work hard on it, we should then actually not see a long delay when the car production comes up because we shouldn't have overshipped the supply
chain. Thank you. Thanks, Ross. Thank you.
And our next question comes from the line of William Stein with SunTrust. Your line is now open.
Great. Thank you very much for taking my questions. First, I'm hoping you can linger a little bit on the comment about aligning customers' forecasts or going to them to ensure their forecasts are up to date. Can you help us understand what portion of customers you deal with to get forecast, whether those are the Tier 1s or the OEMs? What portion of those are open and having these engagements with you?
Are these largely engagements where you work with customers and have a dialogue today? Or is it more a situation where there's a big chunk of demand that is really much more questioned because perhaps they're not even available to take the call.
So Will, I'll take a shot at it and then I'll let Kurt add. What we've found is sometimes it's a little more difficult to communicate with our customers at the Tier one level, but I think everyone is working from home. So ultimately, you have the ability to communicate. I think what we're really trying to emphasize is that the demand signals they had had not been modified for the plant closings either at their level or at as they look at their individual manufacturing facilities are at the actual automotive company level itself. And so obviously, we've been trying to push back and actually told them that we were not going to ship parts and went out pretty aggressively with some unique requirements on orders to be sure that we got as thorough assessment of demand as possible because we just felt like it was critical not to be shipping orders as they were indicating and building a factory that was ultimately not going to be used.
So we've been very aggressive about that and worked with them and had good response. And I think the key is, as we go through this period of uncertainty and fluidity, we must really have good communications with customers to really know what's going on. And I think that's the key is being sure and we're able to do that as they work from home. Kurt, please add anything you'd like.
Yes. I completely second what you are saying. I would just ask, Will, indeed, we have worked this very, very closely with the Tier 1 customers. All our large customers there, we have been sitting together over a number of weeks, virtually sitting together and worked this very hard to come to what we jointly believe is a reasonable forecast, which was not their first input. So it is the Tier 1s which we've done it with.
They are operational at this point in time. And I think in the end, that was a very positive process because it also helps them in the way forward.
Thanks for that. One follow-up if I can. I'm wondering if you could comment on your ability to continue the pace of innovation when some of the employees are remote. And the same relates to your customers, their ability to sort of engage in new technology evaluations roles with that.
Yes, Bill. I think that's actually working amazingly well. And I say that because I had you asked me 8 weeks ago, would that be possible, I probably would have been much more cautious. But the matter of the fact is that with all of these key customers for us, we have very long standing and deep relationships, which actually made it relatively easy now to do this perfectly on a remote virtual basis. So lots of video conference work.
But also internally, Rick spoke about this in the beginning, a lot of our engineers are in a work from home situation. We have almost no drops in productivity, which we could measure so far. So things really work, and the same way it also works with our customers. But again, I think it's a result of the fact that this is not a new relationship which has to be built, but we've had these relationships for many years in most cases.
Thank you. Operator, we'll take one more question here this morning. Thank you very much.
Sure. And our last question comes from the line of C. J. Muse with Evercore. Your line is now open.
Yes, good morning. Thank you for squeezing me in. I guess another question back on auto. Can you speak to, I guess, how you're seeing trends geographically? It sounds like production, positive territory for China, but down double digits in U.
S. And Europe and would love to hear kind of how that plays a role in the thinking for your auto business growth or decline in calendar 2020. And I guess as part of that, how are you thinking about potential for cash for clunker plans into Q3, Q4? And within that, how are you planning perhaps for what the magnitude of recovery could look like if we do indeed get that type of plan?
Let me take a shot at this. So on the cash flow planter programs, I mean, I know as little or as much as you do. So there is a lot of discussion about this, which we are witnessing, I think, both in the U. As well as in several countries in Europe. I'm not aware of a specific one, which is agreed yet.
And at least judging from how it did work in 2,009, 'ten, then it had indeed a pretty significant positive impact. But again, I don't know more of anyone which would be agreed yet. What I do know is that China has renewed some of the similar programs for battery electric vehicles, which seems to be working. So there is clearly, as we said, not only that the car sales and car production in China is moving up, but also the trend for electric vehicles specifically seems to look pretty good in China. From a I mean, we don't give a full year guidance, and it's really hard to say what Europe and the U.
S. Will do. But I think it is indeed fair to say that China seems to be on a positive path at this point, which we have to follow obviously into Q3 and Q4 if it holds. But the beginning of Q2 looks promising, I would say.
Very helpful. If I could just sneak the last one in. Can you provide an update on where we are in terms of UWB deployment? Thank you.
Yes, Kurt, go ahead.
Yes, Ultra Wideband deployment is on track to what we've spoken about earlier. So we have a small amount of revenue already running in the automotive space for a keyless entry solution, which is based on ultra wideband. And we continue to work very hard on seeing a mobile deployment in the second half of the year, which would deliver more significant volumes. Traction overall, both in mobile and automotive and further IoT applications, is absolutely on track to our earlier expectations. So ultra wideband, I'd say, continues to be really hot and then XP continues to be in a great leadership position.
Very helpful. Thank you.
Thanks, C. J.
Thank you. And this concludes today's question and answer session. I would now like to turn the call back to Rick Klemmer, CEO, for closing remarks.
Thank you very much. So it's with mixed emotions that I am talking to you guys today after 11.5 years with the opportunity to work with the team at NXP in what I believe to be a true industry transformation where we really focus on shareholder value and a customer focused passion to win to drive true product leadership. Kurt, I really wish you the best of luck and really look forward over the next few quarters to support you in continuing to move forward from an NXP viewpoint as we move out of the current environment we're in. Obviously, that current environment is very fluid and very dynamic and clearly creates a lot of MEC signals. We're currently focused on the challenges that we see, but we want to be sure that we don't lose sight of the opportunities and the positive trends, specifically those recent trends that we talked about related to China.
We know that NXP's long term strategy is correct as we have a very strong portfolio and we're focused on what we believe are the best markets for auto, industrial, as well as being able to support the mobile wallet and comps and infra. We will keep maniacally focused on key development programs and stay highly engaged with our customers in ensuring that we drive true product leadership and then focus on taking that forward to solutions levels and driving thought leadership with our customers to be able to deploy more efficient solutions. So with that, in my final remarks, I appreciate all your support over the years. And since I know there's a number of the NXP team that are on the call as well, I really appreciate all of your support and it's been a real honor to work with you over the last 11.5 years and we'll continue to look forward to supporting Kurt and the team as we move forward for the next few quarters. Thank you very much.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.