Good day, ladies and gentlemen, and welcome to the NXP Semiconductors Investor Call. At this time, all participants are in a listen only mode. And later, we will conduct a question and answer session and instructions will follow at that time. And as a reminder, this conference is being recorded. I would now like to hand the call over to Mr.
Jeff Palmer. You may begin.
Thank you, Amanda, and good morning, everyone. Welcome to our call today. The goal of today's call is to discuss the technical and business benefits of the recently announced acquisition of Marvell's Wi Fi and Bluetooth connectivity assets, which we expect to close by Q1 2020 subject to customary closing conditions, including any regulatory approvals. With me on the call today is Curt Sievers, NXP's President Rafael Sotomayor, Senior Vice President of Secure Transactions and Identification Solutions and Jeff Leese, Senior Vice President of Microcontrollers. All will be available for the Q and A portion of the call.
Before we begin the call today, I'd like to highlight a few items. The call is being recorded and will be available for replay within 24 hours from our corporate website. We will be referring to a slide deck during today's call, which can be viewed from the NXP Investor Relations site. After the conclusion of today's call, we will post the accompanying slides. Our call today will include forward looking statements that involve risks and uncertainties that could cause NXP's expected performance to differ materially from management's current expectations.
Please be reminded that NXP undertakes no obligation to revise or update publicly any forward looking statements. For a full disclosure on our forward looking statements, please see the accompanying presentation slide for today's call. Lastly, after our prepared remarks, we will open the call to a Q and A session. We request participants to keep questions limited to the topic of the pending connectivity asset acquisition. We will not provide an update to the current business environment or provide any update to our anticipated Q2 results.
I'd like to now turn the call over to Curt Sievers. Curt?
Thank you very much, Jeff, and I'm really excited this morning to shed more light into how the acquisition of the Marvell connectivity assets will actually both enable, but also accelerate our strategy for secure connections for a smarter world. After carefully scanning the market, we are deeply convinced that we found the best assets to deliver on that missing piece in our portfolio, which we've been searching for a while for completing our offering with microprocessors, microcontrollers and connectivity for the IoT and automotive markets. We are sure that the connectivity assets of Marvell will perfectly complement our complete offering in microcontrollers, microprocessors and the security portfolio for both the industrial IoT and automotive markets. But further to that, we also know that we will perfectly leverage NXP's market reach and our channel to the market in all of these markets. Now let me briefly recap the transaction.
As we had announced it on May 29, A asset purchase $1,760,000,000 all cash transaction. We look at about $300,000,000 revenue from Varell, which we anticipate to double in the next 3 years to $600,000,000 in 2022. The deal is financed with cash on hand, no financing required. We do need regulatory approvals in various jurisdictions, and we expect to close the deal in the Q1 of 2020. Now let me zoom out a little bit to the overall strategy of NXP.
In a world where the IoT end nodes will be growing very quickly, we do have the best possible technology foundation for the complete portfolio needed. And that starts from the sensing side over the processing, connectivity to the actuation, complemented by what I think is absolutely crucial, which is functional safety and cybersecurity. Those two elements are complementing the rest of the portfolio to deliver the trust and full functionality to our customers. Now with the acquisition of the Marvell connectivity assets, NXP is uniquely positioned across this entire portfolio from sensing over the thinking part, connectivity part to the actuation, including safety and cybersecurity. Now if we zoom a little bit deeper into this from a portfolio perspective, let me give you a couple of highlights.
On the sensing side, automotive, radar and vision technologies. Machine learning enabled face and gesture recognition, voice recognition, anomaly detection. These are all elements of the everything aware sensing environment, which we can better enable than any other company. We do have an absolute leadership position in our processing portfolio, starting with very cost effective microcontroller solutions over our industry leading new category of crossover processes to high performance applications processes and our embedded layerscape portfolio. And now with Marvell, we can complete this with connectivity leadership in both Wi Fi and Bluetooth technologies, complementing our existing leadership in NFC, Mifare and other connectivity technologies.
And last but not least, we do have a leadership position on the actuation side, in safe power management, high speed interfaces, high performance and general purpose analog. And as I mentioned before, this is complemented like with a shell by leading technologies in security and in functional safety, both needed for the IoT and automotive end markets. Now from here, let's zoom into the connectivity side of the house. And I'm glad to hand over to Rafael Sotomayor, who's been with NXP for the past 5 years, leading our secure transaction mobile wallet business. Prior to that, Rafael has been with Broadcom for 11 years and all the time in leadership positions for Bluetooth and Wi Fi connectivity.
And in that capacity, we were also glad to have Rafael working on the due diligence of the Marvell assets through the past couple of weeks. So Rafael, over to you, give us a deeper insight into your perspective on the product leadership position of the Marvell asset.
Thank you, Kurt. So we analyze all connectivity options in the market, both public and private. And we determined that the Marvell connectivity asset was the strongest connectivity team with the strongest products in the market. I mean, we like the team. I mean, this is a team that has been involved in connectivity since the beginning, since 2,001.
They know what it takes to deliver a world class performance and world class interoperability. I mean, they can compete against anybody in the market. We like the fact that the IP is internally developed and they themselves own a lot of fundamental IP in this space. They have a very strong product portfolio and it matches very well to our strategic and core markets of auto and industrial and IoT. First, all the products are Bluetooth, Wi Fi combos, which is exactly what our products need and which was not the case in many of the other assets that we analyze previously.
And they have what we consider the best Wi Fi 6 product family and roadmap in the market. Their AX if you look at their AX product rollout, it started with 8x8 moving to 4x4 and followed by a family of performance client devices of 2x2. They match what the industry rollout of Wi Fi 6 is in the market, but it fits very well into what our markets are going to look like moving forward. So we consider this strength in Wi Fi 6 fundamental. We all know that 802.11ax is getting deployed initially in mobile phones and PCs and access points.
But we see in the rest of the market, we see also Wi Fi 6 penetrating those markets. And in the next 3 years, Wi Fi 6 is going to be 30% of those of the Wi Fi market. And the reason for that is that Wi Fi 6 has a very strong value proposition that is relevant to today's world, everything connected. It addresses network capacity, it improves throughput, it has low power modes that is very suitable for IoT nodes that they are power sensitive. So if you look at the previous Wi Fi evolution from B to G to N to AC, all that evolution focus on peak data rates with the assumption that you have clear channels with excellent conditions with very limited Wi Fi devices around you.
This is clearly not the case today. Wi Fi is everywhere and we live in a world with hundreds of Wi Fi devices around us and does probably even dozens of APs at any given time around us. So one of the greatest benefits that ax provides, it improves the performance of everyone in the network in a harsh congested environments where there is a high level of Wi Fi overlap. And so this is one of the main reasons why we see WiFi 6 getting into the rest of the market very quickly. And we feel very strongly that this market move to WiFi 6 and this transition fits very well into with the portfolio of WiFi combo products from Marvell.
Thanks very much, Rafael, for shedding more light on the product leadership position of the Marvell connectivity asset, especially around the inflection point of Wi Fi 6 and the value it represents to NXP. And that is actually also the basis for our anticipation of doubling the revenue from $300,000,000 levels this year to about $600,000,000 in 2022, centered around the industrial and IoT market where we anticipate to grow at a CAGR of 27% through the next few years, and actually doubling the automotive revenue with a CAGR of 35%. This altogether will add about 150 basis points of additional company level growth for the entire NXP. Now why is that? How does it work?
The portfolio clearly complements our leadership positions in applications processes and in our crossover processes. About 2 thirds of our AP and crossover design wins, which we've been scoring through the past periods, go together with connectivity, with the requirement for connectivity, which obviously we were not in a position to fulfill so far. So that gives you a feeling on what the value for us represents by having this asset going forward. We do anticipate that the 2 thirds ratio will even grow beyond that level in the years to come with more and more connected end nodes in the market. We do see a clear possibility to leverage our relationship with module makers providing complete connectivity and processing solutions to the end customers.
And on an equal footing, we do have the opportunity to leverage our leadership footprint, our leadership position in the connected automotive infotainment market, which will also be increasingly penetrated and complemented by Wi Fi Bluetooth connectivity solutions. And that actually gets me to the revenue synergy, which results from our broad market access. And this is really why and where the connectivity assets of Marvell represent a much higher value to NXP. We do have not only the channel access, but also we have the expertise of selling through the channel. This comes with a large and very experienced and I dare to say industry leading mass market sales organization, but also with the tools on how to deploy solutions through the channel, be it through reference designs and the technical support being required, both with the distribution channel, but also with mass market customers.
So having said that, we really apply a force multiplier here, which is more customers, more distributors and more sockets, which we can get our hands around with the connectivity assets of Marvell than Marvell could ever do in their standalone position in the past. And this is actually what together with the technology leadership position, the inflection point with Wi Fi 6 lets us anticipate the doubling of the revenue from the $300,000,000 level to the $600,000,000 in a couple of years from now. Now getting back to the value proposition of the secure connections for a smarter world. With this acquisition, we do have an unrivaled connectivity portfolio in NXP. We just announced a couple of days ago actually our engagement in ultra wideband, my fare NFC leadership positions are well known, ZigBee, Threat, RAIN RFID and not to forget the DSRC based vehicle to vehicle communication.
So a really broad strong leadership portfolio in connectivity technologies. That goes hand in hand with our leadership in processing. And I want to highlight again the very strong growth and opportunity we have in the new category of crossover processes, where NXP leverages leadership in microcontrollers and APs more than any other company can do. Now this is only strong if we gain the trust of our customers through the complement of security. And we have the full portfolio of security from very cost efficient authentication over embedded security and microcontrollers in a software format all the way to very high performance discrete hardware secure elements.
And the true key to success is going to be our access to the market. We can reach more than 26,000 customers. We do this partially through more than 30 distribution partners, and that gives us the power and the access to the market, which makes that combination of connectivity, processing and security really, really powerful into the entire global IoT and automotive market. With that, I hand the word back to you, Jeff, and I think we want to go into Q and A from here. Great.
Thanks, Kurt. Amanda, we'll queue for Q and A, please.
Absolutely. Our first question comes from the line of William Stein of SunTrust. Your line is open.
Great. Thank you for taking my question. Marvell had historically taken a somewhat more muted view of its growth opportunities in this business. I understand there is some complementarity with your microcontroller portfolio, But what gives the company the confidence that it can double revenue by 2022? Are there design wins sort of already won?
Or is it more the anticipation of cross selling the products with the rest of the portfolio?
Thanks, Will. And by the way, glad to have you on the call. Yes, clearly, you go to the heart of the matter. Our anticipation of doubling the revenue is just a, let's say, the evidence of why we think this has a very high value in the combination with our existing assets in NXP. And that is indeed initially clearly based on the design win pipeline, which Marvell has in place.
But on the mid and longer term, clearly, the combination with our technologies, as I had explained earlier, to complete the portfolio for IoT end nodes and automotive infotainment in a connected way, but also our markets, our deep and broad market access and the tools and knowledge we have to bring complete solutions through reference designs into a very, very broad customer base, that is actually what makes us very, very convinced to accelerate the revenue in the format which we have laid out towards $600,000,000 in 3 years from now.
Great. And one follow-up, if I can. In order to understand anticipated return on invested capital on this acquisition, Can you talk about both profitability perhaps out of the gate? And then as we see this revenue growth presumably there'll be some operating leverage with that. We'd love to hear any quantification that would help us evaluate the returns of acquisition?
Yes. Thanks, Will. I'll take that question. So as we said, this acquisition will be accretive to operating profit dollars. So we're excited about that.
From a margin perspective, it's probably in the lower 50s range. And on a stand alone basis, we think it's kind of mid- to lower 20s EBIT on a stand alone basis. But we think in the overall scope of the company, it's not going to change the overall financial model of NXP. But it really fills a strategic opening in our portfolio that we needed to fill.
Great. Thank you.
While adding 150 basis points in growth.
Very well put. Yes. Maybe that's a point to highlight that our long term growth target for the company is normally 5% to 7%. We think this asset will increase that growth rate by 150 basis points over that same period of time. Thanks, Will.
Thank you.
Thank you. And our next question comes from the line of Craig Hettenbach of Morgan Stanley. Your line is open.
Yes, thank you. Just wanted to see if you can expand on there's been a lot of activity in connectivity from an M and A and strategic perspective in recent months. From a timeline perspective, you guys have talked about kind of coming out of the Qualcomm deal break. This was an area that was in focus and you wanted to address. And so if you can just expand on kind of why Marvell and just dig a little deeper in terms of the fit with Marvell and NXT, that would be great.
Yes. Hi, Greg. Thanks. Indeed, quite a bit of activity here. Obviously, we've also witnessed other deals like Quantenna and Cyprus in the more recent history.
And trust me, we have very carefully looked at all of the assets out there in the market, which could possibly fit into the and I call it now into the whole of our portfolio for our complete offering. Because indeed and you mentioned it, coming out of the Qualcomm deal, so after the termination last year July, that was clearly identified immediately as that one missing link, which we had for a complete portfolio. So since then, we've been scanning the market and we came to the clear conclusion that for our needs as a complement to our existing portfolio, the Marvell assets represent by far the best value. This has a lot to do with the leadership, the product leadership, especially going into Wi Fi 6, which we consider the key inflection point when it comes to enabling edge processing, connected edge processing in the IoT. But maybe Rafael, you can expand a little bit more about your perspective on the product leadership and capability of the team relative to what else could have been out there in the market.
I mean, this asset is very clearly probably what we analyze is the best roadmap for what is coming in Wi Fi, right? It's not about what it is today, but what is coming in Wi Fi today. And so clearly leadership position and from the high end all the way to IoT nodes and low power. So 8x8, 8x8 all the way down to 2x2 and even lower. And so clearly, what we saw, we liked very, very well positioned, a team that knows how to execute and they knows how to deliver these products.
This transition from WiFi 5 to 6 is not trivial. I think from a technology perspective, a lot of incumbents in today's market are going to struggle. And so we like what we see, the readiness of the portfolio, the readiness of the roadmap and the fit that it has with our micro.
Got it. And I think just as a follow-up, Curt, just given your background in automotive, you have a number of interesting growth drivers in kind of radar, BMS and how connectivity will come into the fold. Kind of how that stacks up and just from a strategic standpoint, how that changes customer engagements?
Yes. It's thanks, Greg. It's actually a very nice next complement to complete our connected infotainment offering. And when I say next, what I relate to is actually the first step, which was the NXP Freescale combination a couple of years ago, where we complemented NXP's radio audio leadership with the AP leadership of freescale. And the reality is really that most of the growth through the past couple of quarters, but also next year's is as we laid out earlier in digital clusters, which needs the AP leadership, which we got as a complement through freescale.
But now most of these systems are being and will be connected. They will be connected such that you as a driver in the car can actually interact with your smartphone with the infotainment system of the car. And that works both through the links of Bluetooth, but also when we speak about more data, like audio and video data exchange, it works through Wi Fi. And this is actually where indeed this was the last missing piece. So I dare to say, if I think about our offering now in connected infotainment in the car, we really don't miss anything.
I mean, I feel Greg is a very privileged situation now because I got the complete portfolio. I know how it feels because it would have been similar with Qualcomm, obviously. So that's why, I mean, there is a very clear perspective on this complementary portfolio. The good news is that the penetration rates of WiFi and Bluetooth in connected infotainment are going to grow significantly going forward. And that also gets us back to the bold anticipation here of tripling actually the revenue in that space over the next 3 years.
So yes, great complement and immediately also coming back in a very solid increase of our revenue.
Thank you.
Thanks, Craig.
Thank you. Our next question comes from the line of Ross Seymore of Deutsche Bank. Your line is open.
Hi, guys. Thanks for doing this call.
I appreciate all the color. Two questions. The first one is on competition. Obviously, as was mentioned in a prior question, Wi Fi assets are suddenly very, very popular. Everybody's claiming they got the best deal in acquisitions and all the incumbents that the Qualcomm's and Broadcom's and even the Intel's of the world all claim they have a great position for Wi Fi 6.
So guys are claiming no different. I wouldn't expect you to say otherwise after doing this deal. But do you see the competitive intensity rising? And do you think that differentiation is solely going to be because of the solution you can bring to the market with your other connectivity solutions or microcontrollers and crossover IP or crossover processors, etcetera? Are you fearful at all that pricing becomes more aggressive in this market given what seems to be a rising level of popularity for these sorts of solutions?
Thanks, Ross. I think that's a great question because indeed the let's say the M and A intensity around the wireless assets through the past few months is indeed obviously a strong sign that something is moving here. As Rafael had laid out, we have a strong perspective that we got the best product leadership asset here, which is available in the market. But in the end, and that's why I like your question, that is just one component. What really will deliver value for us is the combination with our existing product portfolio because in order to escape any possible pressure on pricing, it is about offering full solutions, which is a very different you get into a different league of offering value to your customer when you don't do it that much on a component level, but actually on enabling a complete solution.
And here, I would actually ask Jeff Lees, who has been leading our microcontroller and microprocessor business for many years. And actually, I would even say, Jeff, you are the brain and the inventor behind our new category of crossover processors, where especially the complement of connectivity plays a big role. So Jeff, maybe you lay out a little bit why you think that combination offers us a very strong value proposition to our customers.
Yes. I mean, in the course of the last years, it may not be apparent, but we work very strongly with external connectivity module partners. We have a large ecosystem of support there and increasingly see almost obligatory connectivity requirements in Wi Fi and Bluetooth across the spectrum from Wi Fi 4 through 5 and now 6. And the first six engagements in the IoT and industrial space have already started. So our work there has included delivering drivers for our SDK, our MCU Expresso SDK as well as customized drivers to many customers now in the WiFi 4, 5 and 6 space as well as with Bluetooth.
And we've integrated those into our SDK. We've also integrated them into our Linux delivery systems for our full application processes. And what we see is customers adding much more intense processing capability for human machine interface, for graphics displays, increasing the requirement for high bandwidth streaming of video and graphics and data requirements for cloud and also for local edge node processing. So in the course of that, we've experienced working with a number of Wi Fi silicon providers. We've seen the advantages from the Marvell solutions from the point of view of end customer bill of materials, both in the form of module placements in their designs as well as onboard direct design of Wi Fi and Bluetooth with larger customers.
And our experience has been the ease of integration and the lower cost solutions and high performance results that are being delivered by these Wi Fi solutions. That's informed our investigations of the market and it's helped us to make that decision on what we think is the best asset in the market. But at the end of the day, it's our customer choice that really decides the success of connectivity and the deployment. And we've seen that increasingly with Marvell solutions.
Yes. And let me actually add here a little bit talking out of the kitchen. I mean, through many, many customer meetings I've had prior to that announcement, we've had and I've had so many requests, if not, we could offer a more complete solution, because for customers, it is a significant reduction of time to market and R and D efforts, if they get the complete solution out of one hand. I mean, that even went all the way up to that one day, I think it was May 29, if I remember that correctly, where we did the announcement. I had been traveling in Japan in that week and had a couple of meetings with both auto and non auto customers.
There are several times the explicit request came up if we could not help them enable a complete solution. Since there was and is a lot of satisfaction with our assets in security and processing, but the connectivity piece had been missing. So I say this not just from an abstract perspective, but really from a hands on customer experience where that request has been there all the time since we have terminated Qualcomm.
Ross, did you have any follow-up?
Yes. Just a quick one, I hope. On the revenue doubling side of things, I think a lot of investors are just struggling with the either Marvell had a bunch of design wins or you guys are going to really hit the gas hard on this. And in that latter scenario, it seems somewhat difficult in the automotive and industrial IoT markets to turn things that quickly, just given the design cycles in those markets. So are we all just wrong that the design cycles are so long in those two markets and they're shortening?
Or is there something that you guys had offerings with other external Wi Fi Bluetooth suppliers and now you can plug this one in. Is there something that allows you to really accelerate the position Marvell was in before to get to that doubling over the next 3 years, especially given those two markets tend to be longer duration design cycles?
Yes, Ross. So clearly, in automotive, let's stay realistic. I mean, the pace of design wins and conversion into revenue is not changing that dramatically. So that clearly means that in that particular case, the majority of the revenue, which we anticipate, is based on existing design wins. But what I would tell you is that our customer relationships and our intimacy into those specific connected infotainment auto solutions clearly helps to build a lot of confidence to definitely roll out these design wins as they were taken by Marvell in the first place.
So it's more of a more confidence on because we know all of these customers and are pretty deeply embedded with them with the rest of our portfolio. On the industrial and IoT side, it's a bit faster, and I let Jeff comment on how he views this. But again, we do have a very, very significant advantage here with providing access to so many more customers and being in a position to enable these customers in a way which Marvell just couldn't do since they didn't have the micros or the IPs for complete reference designs. So Jeff, maybe you speak a little bit about timing effect here and how that plays out. Yes.
I think in
the industrial and IoT space, the fact that many customers use precertified predefined modules with reference designs makes for a much shorter design cycle than you would if you were approaching a onboard design yourself, where clearly the design cycle there is in the range 18 months to 2 years. But in the module business, we have done extensive training with our ecosystem partners of our very large distribution FAE force as well as our own internal system engineering and applications engineers in the field. And we're increasingly doing more and more solutions business with customers where we can provide a fully functional solution that customers can either optimize and customize themselves or we can even engage with them to do that to bring products to market. One good example that we've shown at our recent trade shows and events has been, for example, adding connectivity, voice and audio capabilities to smart home products from thermostats to even smart intelligent light switch and dimmer products. So we've seen customers able to turn fully productionized ready to go to market designs in under 3 months when we're able to provide fully functional complete turnkey solutions.
And even with module designs where customers are doing more of their own, design cycles can be as low as 6 to 9 months. That's why we feel with the momentum we've seen from the IoT and Industrial markets, we see that growth rate accelerating.
Great detail. Thanks, guys. Great.
Thank you. And our next question comes from the line of Stacy Rasgon of Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my question. I wanted to follow-up on that point. So what I'm hearing is that the automotive trajectory is dependent on existing design wins and then you're looking for acceleration in IoT because of shorter cycles. But I guess what would that revenue trajectory look like if you for the asset as a whole, if you would have base it solely on the existing design wins, as they exist when you take the assets?
And I guess given the timeframe 3 years, is it fair to say that more of that growth that you are seeing is going to be coming from industrial versus auto just given the difference in those design cycles?
So hi, Stacy. We will actually not go into clearly separating the element of revenue synergy into this versus the baseline revenue coming from Marvell. So we will not provide the detail. However, directionally, Stacy, clearly, the full flash out of synergies, of revenue synergies is probably beyond the 3 year period. So I mean, that's the way to think about this.
And obviously, especially in automotive, given the design cycles there, but also overall, we are not at the end with the €600,000,000 in 2022. So a lot of that synergy potential we have been talking about through the last 20 minutes or so is actually going to really roll out probably after the 3 year period.
I'm sorry, I'm confused. So what you're saying is that the $600,000,000 is not the limit to the revenue synergies that you see from here or you're saying not going to reach the $600,000,000 in the 3 years?
No. What I'm saying is that for the $600,000,000 in the auto portion of it, the synergies don't certainly don't play a huge role. Further, I said that beyond the 3 year period, which is after reaching the €600,000,000 in 2022, we will really start to benefit from the synergies because that's the design cycle time where it's going to play out big time. So I'm carefully indicating here there is much more to come after reaching the $600,000,000 in 2022 and the $600,000,000 do not depend that much on the synergies in the first place.
In auto?
In auto and directionally also in industrial IoT. But as I said, we will not provide a clear split out of what is revenue synergy and what is the baseline performance from the Marvell asset.
Got it. That's helpful. Thank you. For my follow-up, I just had a question. Where do you just tactically, where do you see the leverage of the combined company at close?
And what are your buyback plans between now and the close and then post close?
Yes. Stacy, I'll take those. So we will pause our buyback as we go towards the close. If you kind of look at the price paid, that kind of roughly would equate to about 3 quarters of free cash flow. You can see what we have on the balance sheet.
I don't think we're going to give you a forecast on leverage, but you know our target, our long term target for leverage is 2x. And so I think you've kind of got the moving pieces. You kind of come back into what it might be at this time of close.
Okay. And you think does the buyback resume on post close then?
Well, nothing's changed from our fundamental view that we're returning all excess free cash flow to our shareholders. So once this closes, we'll get back to our buyback and we have our dividend in place and nothing changes from that perspective.
Got it.
Thank you, guys. Appreciate it.
Yes. Thanks, Jason.
Thank you. Our next question comes from the line of Vivek Arya of Bank of America Merrill Lynch. Your line is open.
Thanks for taking my question and thanks for hosting this call. The first one, Kurt, is this asset ready for prime time or do you think you will need to invest in it in terms of software and tools and other things? When is the earliest you think this can start helping towards your growth objectives?
Thanks, Vivek. So the answer is to the extent we have the capability to look into the asset. There is limitations on what we can know and cannot know. To the extent we know, it is ready for prime time. And that's actually what Rafael was laying out, Especially when you think about the readiness for Wi Fi 6 product and certification availability, we do see it very, very much ready for prime time.
And that is where the whole synergetic value is going to come from that we can immediately go and put it together into complete solutions with our offering on the processing side.
Got it. And can you give us a sense, Kurt, of what the current breakout of the end market is? How much of what they're doing right now is tied to industrial IoT or autos? And I believe they have enterprise portion. And I was wondering if enterprise access points will also be a target market for you?
Yes. So the current breakout roughly is about 60%, so the significant majority in the industrial IoT market. And there is a 10% portion into automotive, growing sharply as we laid out earlier, and about 30% are in the comms infra market, which clearly we will maintain.
Thank you.
Thanks, Isaac.
Thank you. And our next question comes from the line of Blayne Curtis of Barclays. Your line is open.
Hey guys, thanks for taking my question. I have 2. I just wanted to get to the doubling of revenue, it's that 25 percent CAGR. I'm just kind of curious, we think the market is growing inherently what types of content and share gains you're looking at? And then just kind of curious as you look at your portfolio, you list kind of the you're buying this Wi Fi Bluetooth, kind of standard Wi Fi Bluetooth.
You had some ZigBee and some home automation kind of mass technologies. Maybe you could just talk about the combination of those assets? Thanks.
Let me
maybe let me understand the question a little bit more. Is the question more about are we going to leverage one IP with another or is the maybe you can elaborate and maybe provide some color on the question.
So the second part of the question was you mentioned other types of connectivity assets that are NXT technologies. Just kind of curious as some of these things kind of mesh together ZigBee and Bluetooth mesh, can you just talk about the roadmap to combining these to participate in the home automation space? Sure.
I mean, we clearly see the some synergies there of NXP providing the Marvell connectivity team with additional IP that is going to make those products stronger, right? You're talking about some wireless connectivity, but we can't leave security, we can't leave some of the process technology we have on NV and embedded flash. So there are a lot more IP than just ZigBee and some of the stuff that you just mentioned. But yes, we do see an augmentation of the roadmap of the combined groups once this closes.
And I think, Blaine's question, I think you're asking about kind of how we see the market developing. Based on the 3rd party vendor we use for research data, it looks like the combined Bluetooth and Wi Fi market on a dollar basis will kind of grow at an 8% CAGR between 'nineteen 'twenty two. So yes, I mean maybe kind of in classic NXP fashion, we think we'll outgrow the market. And it really is around this attach rate concept with Jeff's business in APs and crossovers and possibly also in micros. And then explosive growth of ax is also just a natural tailwind.
Yes, which is the ax, I think, is the key to a lot of this. That market does go through an inflection point. And we've seen this earlier when it went from Wi Fi 4 to Wi Fi 5 that incumbent leadership positions are not an indication for the market share for the future. So that's why this inflection point to move from WiFi 5 to the whole anticipation of the revenue growth.
Ed. Amanda, we'll take another caller.
Absolutely. And our next question comes from the line of Harsh Kumar of Piper Jaffray. Your line is open.
Yes. Hey, guys. Thanks for hosting this call. Very helpful and congratulations on getting one of the tougher to get assets. But I had a question on profitability of the business.
I think it's below that of your corporate business. We heard a lot about growth, but is there a plan also to probably prop up or hopefully prop up the profitability of this business? Or is this strictly a growth play for an XPI?
Well, Harsh, this is Jeff. I'll take that question. It's definitely around capabilities and driving growth. But from a profitability perspective, we believe that there's probably some levers we can pull to improve gross margins based on what we see at this stage. I mean, it's still early to deal with SaaS and close.
In the context of a $9,500,000,000 $10,000,000,000 business, dollars 300,000,000 expenses of the business is not going to ruffle the waters that much, if you will. So we think we can approve it.
Understood. Thanks. Okay.
Thank you. And our next question comes from the line of Tore Svanberg of Stifel. Your line is open.
Yes, thank you. Good morning and thank you for hosting the call. So there's been a lot of talk about industrial IoT. But when you look at the M and A over the last few months, the 3 companies that acquired connectivity assets have heavy automotive exposure. So I'm just wondering, is there going to be an inflection point here coming for automotive when it comes especially to WiFi because obviously I mean Bluetooth is already heavy in cars.
So if you could elaborate a little bit on that, that would be great. Thanks.
Yes. Thanks, Thor. Well, I mean, we do have clearly the biggest exposure to automotive since we are the number 1 in that entire space. And not only in automotive overall, but we are the number 1 in the connected infotainment and digital duster business. So we do have a very deep insight into what's going on there.
Is it an inflection point? No, I think it is continuing penetration of Wi Fi and Bluetooth connectivity into the dashboard. But that is on a good trend. It does continue and also here Wi Fi 6 over time will play an important role. But again, I would say we are in the best possible position to leverage this connectivity combination since we are already the leader in connected infotainment and that was the only piece which we've been missing.
And I think that's quite different to the other acquisitions, which had some automotive touch points. None of them is in a position in infotainment, which comes even close to ours.
Very good. And as a follow-up on the industrial and IoT segment, and maybe Rafael, because you talked about the ability to offer system solutions. When can we start to see products from NXP that are, I guess, we can call them multi band, right, where you can basically offer all the low power connectivity like ZigBee, Thread and so on, but then also Wi Fi and Bluetooth, kind of like a connectivity SoC, if you will?
Yes. Well, that to a certain extent, that's already happening through the module world. Customers are increasingly specifying a richer complement of connectivity protocols. Bluetooth mesh, BLE mesh is going to be one of the more significant driving areas in that space, and the Wi Fi 6 and BLE mesh space is particularly interesting. I think there'll be quite a lot of dynamic change in different markets between the use of Zigbee or Z Wave or earlier IoT protocols and the addition of BLE Mesh.
It's open to question whether BLE Mesh can take over all of those opportunities. But certainly, as the BT6 standards evolve and BLE mesh becomes more standardized and more common in designs, that's an exciting space for us.
Very helpful. Thank you.
Great. Thanks, Tori. Amanda, do you want to poll if there's any other questions?
Absolutely. And I am showing no further questions. I'd like to turn the call back over to Mr. Jeff Palmer for the closing remarks.
Great. Thanks, Amanda. Thanks to everyone for your time this morning. We appreciate your interest in NXP. We're extremely excited about this asset.
It's still a couple of months away from potential closing. But we look forward to speaking to you at our earnings call in a couple of weeks. Thank you very much. Have a good day.
Ladies and gentlemen, thank you for your