Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 NXP Semiconductors Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Jeff Palmer, Vice President of Investor Relations. You may begin.

Thanks, Sonya. And good morning, everyone. Welcome to the NXP Semiconductors second quarter 2019 earnings call. With me on the call today is Rick Clemmer, NXP's CEO; Kurt Sievers, NXP's President; and Peter Kelly, our CFO. If you've not obtained a copy of our earnings press release, it can be found at our company website under the Investor Relations section at nxp.com. This call is being recorded and will be available for replay from our corporate website. Our call today 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 macroeconomic impact on the specific end markets in which we operate, the sale of new and existing products, and our expectations for the financial results for the third quarter of 2019. Please be reminded 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 today. Additionally, during our call today, we will make reference to certain non-GAAP financial measures, which exclude the impact of purchase price accounting, restructuring, stock-based compensation, impairment, merger-related costs, and other charges that are driven primarily by discrete events that management does not consider to be directly related to NXP's underlying core operating performance of the company. Pursuant to Regulation G, NXP has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures in our second quarter 2019 earnings press release, which will be furnished to the SEC on a Form 6-K and is available on NXP's website in the Investor Relations section at nxp.com. And now, I'd like to turn the call over to Rick.

Thanks, Jeff. And welcome everyone to our conference call today. Today, I'll start with and provide some mid-and long-term strategic commentary. Then Kurt Sievers, our president, will review the end market revenue details of Q2 and provide revenue guidance for Q3. And finally, Peter Kelly will review the financial details of the quarter and expectations for third quarter. As most of you remember, last quarter, we discussed company-specific design wins in our focused end markets of automotive and industrial and IOT. Today, I'd like to provide additional details and share some exciting new engagements which reflect the momentum we have in our target markets. Within our automotive market, we discussed that one of our key focus areas is radar solutions for level 2 and level 3 ADAS vehicles. Initially, radar will facilitate automatic emergency braking which is being mandated by multiple regulatory groups, like NCAP in Europe. Eventually, new use cases will be adaptive cruise control, lane change assistance, cross traffic alerts and blind spot detection. These features are all dependent on radar as the key enabling function and, ultimately, radar solutions will become standard equipment regardless of the car, tier or OEM brand, making all of our driving safer. For NXP, we have emerged as the number one supplier for the complete radar subsystem, with radar representing almost 10% of our auto revenues in 2018. To date, our success on the processor side has been broad-based, while the transceiver shipments have been largely driven by a single large European tier 1, who represents about 30% of the overall radar market and services several major OEMs globally. We're excited that shipments from our design win momentum will expand based on the initial ramp up of one of the most innovative North American tier 1 suppliers who we ultimately expect to…

Thanks, Rich. And good morning, everyone. I'm really glad to be able to speak with you all today. Overall, our Q2 results were about the midpoint of our guidance, with the contribution from the mobile markets somewhat strong than planned, while the demand in the auto markets was slightly weaker. Taken together, NXP delivered revenue of $2.22 billion, which combined with good expense control enabled us to successfully deliver operating profitability above the higher end of our guidance range. Let me turn to the specific trends in Q2 in our focused end markets. Automotive revenue was $1.03 billion, down 10% year-on-year, in line with our guidance. Based on the most recently available IHS data, year-on-year global car production trends continue to be revised down, especially in China and Europe, the two largest auto manufacturing markets, while the North American market slowed modestly. This had the effect of slightly weaker-than-anticipated shipment in Q2 for NXP. Revenue in all our major product categories declined versus the year-ago period as anticipated, except for revenue from ADAS, especially radar, which was up double-digits, a continued reflection of NXP's differentiated product offerings and our strong customer traction, very much in line with how Rick laid it out just a minute ago. In industrial and IOT, revenue was $390 million, down 14% year-on-year, in line with our expectations as the demand for general purpose MCU products in the broad based China market continues to be very weak. However, we saw the expected double-digit year-on-year growth of our cross-over processor products, albeit from a small overall base today. Remember, our industrial and IOT business is primarily serviced through our global distribution partners and relies on tens of thousands of smaller customers, which appear to be particularly effective by the continued US-China trade tension. Let me turn to…

Thank you, Kurt. And good morning to everyone on today's call. As Kurt has already covered the drivers of the revenue during the quarter and provided our revenue outlook for Q3, I'll move to the financial highlights. In summary, our Q2 revenue performance was just above the midpoint of guidance, which combined with good expense control resulted in a very strong non-GAAP operating profit. Focusing on the detail for Q3, total revenue was $2.22 billion, down 3% year-on-year, of which 160 basis points was the elimination of the MSA versus the year-ago period. We generated $1.2 billion in non-GAAP gross profit and reported a non-GAAP gross margin of 53.3%, up 50 basis points year-on-year and in line with the midpoint of our guidance. Total non-GAAP operating expenses were $541 million, down $50 million year-on-year and down $6 million from Q1. This was $12 million better than the midpoint of our guidance. From a total operating profit perspective, non-GAAP operating profit was $640 million and non-GAAP operating margin was 28.9%, up 190 basis points year-on-year despite a $73 million drop in revenue over the same period. Interest expense was $61 million. Cash taxes for ongoing operations were $30 million. And non-controlling interests were $5 million, all modestly better than the midpoint of our guidance. Stock-based compensation, which is not included in our non-GAAP earnings, was $87 million. Now, I'd like to turn to the changes in the cash and debt. Our total debt at the end of Q2 was $8.54 billion, up $1.2 billion sequentially as we issued $1.75 billion of new debt and retired $600 million of existing debt. Cash was $3.03 billion. Net debt was $5.51 billion, slightly up on Q1. We exited the quarter with a trailing 12-month adjusted EBITDA of $3.15 billion. And our ratio of net…

Sonya, we'll now poll for questions please.

Thank you. [Operator Instructions]. Our first question comes from Craig Hettenbach of Morgan Stanley. Your line is now open.

Great. Thank you. First question. Just, Rick, talk about the current environment. Like you said, things have still gotten a bit worse here from a macro perspective. But just curious to see how you're seeing distributors act during this period of time. I think last quarter you mentioned you could've shipped 40 more into distribution than you did and you kind of held back. So, how you managed it this quarter and as you look into Q3?

Yeah, thanks. I think the market environment hasn't changed significantly. We have anticipated that we would see some improvements in the second half of the year. And clearly, that's been pushed out. We do see a little bit of improvement in China, I would say. And I think that comes down to just the fact that their inventory levels are down – where now when they have orders, they have to order product to be able to supply those.0 However, at the same time, we've seen Europe weaken and we've seen the US weaken. When you look at our distributor partners, they are clearly not having the same performance levels they were as you look at their announcement of their results, with even one of them doing a preannouncement associated with it. So, I think the environment continues to stay quite uncertain. The improvements that we had anticipated have definitely been moved out, although we still are improving slightly as we show from the base. Clearly, automotive is improving. We've been fortunate that we had the strength of our infrastructure and 5G deployment over the last couple of quarters. And clearly, the large mobile customer, they deployed on more broadly based in Q2. It then requires a little bit of adjustment in Q3 after they filled up their supply chain. So, all of that comes together to kind of create a little bit of an uncertain environment, I would say, on a continuous basis and not the uptick that we have anticipated for Q3 and going forward at this point yet.

Okay. Appreciate the context there, Rick. And just a follow-up for Kurt on the automotive side, particularly for BMS, just kind of how you're feeling about from a design perspective, what you're seeing in the market for new designs around BMS?

Yeah. Thanks, Craig. Now, clearly, we do see continued strong traction on the design side since BMS is 100% function of the traction and penetration of all levels of electric vehicles, all the way from mild hybrids over hybrids to fully electric vehicles. Our traction on the design win side is good. And we do see now in the second half of this year, the first more significant shipments going. I think we talked earlier about the fact that a large European OEM is going into full production in the second half of this year with a fully-electric vehicle, which we serve 100%. So, from that perspective, we are very much on track, Craig, with what we have expected on the BMS side. I might want to give you a little bit more detail on the different levels and the different silicon levels – content silicon levels in the different sorts of vehicles. So, we are especially focused now and have a very high success rate in the low and mid-voltage electric vehicles. This contains mild hybrid and full-hybrid vehicles. In those vehicles, we do see silicon content from NXP in the range of $50 to $90 per car. That contains the microcontroller and it contains all the analog front-end chips on each of the battery cells. Obviously, the larger the batteries, the more cells, the more analog front-ends and the higher the silicon content. That's why I give you this range of $50 to $90. For those particular vehicles, our design win rates continues to be in a range of, I would say, 80% hit rate. So, from all the visibility we have into open design win funnel, we continue to win about 80%, which is truly high. This is next to the fully electric vehicles. I just quoted to you that, with this large European OEM, we are going into production as we speak. Those cars, we call high-voltage BMS system. So, they typically go all the way up to 800 volts. They have a somewhat higher silicon content. Here we can cover between $80 and $160 per vehicle. And also, there, our traction is good, but not as high as the 80%, which I quoted for the low-to-mid voltage cars. So, Craig, I know that went a little bit deeper than you might have expected, but since this is such an area of high interest, I felt it was appropriate to give you a bit more granularity here.

Appreciate that. Thank you.

Operator, we'll take the next caller please.

Thank you. And our next question comes from John Pitzer, Credit Suisse. Your line is now open.

Yes. Good morning, guys. Congratulations on the solid results. My first question, just one inventory management, you guys did a really good job in the June quarter both with channel inventory and inventory on your own balance sheet. Peter, I'm kind of curious if you can give us some sort of guidance looking into September of how you think your own inventory days will trend? And I guess, importantly, as part of your gross margin target of 55% again in the year, were there any utilization actions that you've taken that that were a headwind that started to become a tailwind as you thought about managing inventory?

As always, really good questions, John. First of all, on distribution, we talked in the past that we just managed the distribution inventory really, really tightly and don't ship in until they're more or less proven they've shipped out. In terms of internal inventory, it's been a challenge the last 3 or 4 quarters to show an improvement in inventory as the revenues kind of suffered from the kind of lighter demand in the marketplace, but we finally caught up this quarter. My internal target is 95 days. I'm not sure I can kind of get there in this coming quarter, but I would not expect our inventory to go up in terms of days. So, it should be somewhere between 98 and 100 days. We have been hit by some utilization issues as you were suggesting in Q1, Q2 and Q3 and we'll see some of the relief from that in Q4. So, yes, there you go.

I think it's probably particularly worthwhile to point out, John, as you can tell from our inventory, we've been very cautious with our manufacturing operation. So, we would not try to load them up to put product in inventory as we understand some of our competitors have.

That's helpful. And, Rick, maybe as my follow-up, I wonder if you can just comment a little about the US-China trade issues and whether or not either directly or indirectly the Huawei ban impacted either your June quarter or September quarter either on the mobile or the infrastructure side?

Yeah. So, I think the trade issues between the US and China, they continue to be quite unclear. We really are not the most knowledgeable source of information. Relative to Huawei specifically, we continue to follow the US guidelines and trade policies. We have been shipping and will ship again in Q3. There are some limited product areas where we have US sourced technology that we've not been able to ship to Huawei at the current time, but it's a pretty de minimis impact, not really a significant financial impact for NXP.

Thanks, guys. Appreciate it.

Thanks, John.

Thank you. And our next question comes from William Stein of SunTrust. Your line is now open.

Great. Thanks for taking my questions. First, I'm hoping you can comment on margins or, said another way, OpEx. I think you've provided sort of goal posts to get to 23.5% of revs spent on OpEx by Q4. I assume that's pushed out a little bit owing to the slightly slower demand you highlighted, but any update there would be helpful. Thank you.

We continue to manage OpEx pretty tightly. We're going full out to get to 16% on R&D and 7.5% for SG&A. You've seen in – both on our Q2 actual and our Q3 guidance, we do have some flexibility on what we can do. And I think Rick talked in the past that we've not been replacing attrition as we go forward and certainly any hiring we do for new positions is very, very limited. So, that's helped us. We do have some flexibility with our incentive compensation. So, reflecting the lack of growth in the businesses has had an impact on our incentive compensation. But, on the other hand, we continue to invest aggressively in the programs that we think will drive the future success of our company. So, you see mask charges in particular are usually a big item and can move cost around from quarter to quarter. Absolutely, we've not given up on the 16% and 7.5%, Will, and we'll either get there or get very close, I think, this year and talk about that for future years as well.

Yeah. Will, it's probably worthwhile to add that we've also taken out low performers, several hundreds of low performers as we tried to manage our cost base in addition to the attrition non-replacement that Peter had talked about. So, we continue to be very tight relative to our investments and go through a lot of review of the strategic investments we are making to ensure that the timing is absolutely required, but yet we want to be sure that we're not putting any of the growth plans in any of our customer relationships in any kind of risk or jeopardy at all.

That's great. Very helpful. I appreciate it. If I can follow up, on the handset growth and subsequent sort of fall off in the coming quarter, I thought that, either last quarter or inter-quarter, you had highlighted at least one other region where there were strengths outside of China. Are you seeing a broader than anticipated adoption of mobile wallet and did you see that in the quarter? Am I correct that they were – there's more than just this one vendor of China you referred to?

There definitely is. We've been very successful in India, as we mentioned, where the mobile wallet has actually been deployed on phones as low as $25 phone. Now, in the current quarters, they've already built up their supply chain and they're kind of trying to absorb that and achieve their deployment to the market. So, it's not nearly as significant an impact in Q2 or even the Q3 outlook as it has been earlier, but it definitely represents another significant proof point. But this customer in China, the encouraging thing was, we've been very successful with him on their high end smart phone deployments. And because of the success we've had with China Transit and the ease of use of passengers getting on transit systems in a much more effective manner, they've now deployed this across their entire portfolio. And they are very aggressive in their intent and goals and increasing their position in the mobile market, and so we're encouraged about being able to support them. But in Q2 specifically, they ramped up. As they made their decision to go across the entire portfolio, we had to ramp up their supply chain and then we go through a normalization process in future quarters. So, the Q2 did have a ramp associated with that that didn't fall us off in Q3 for that specific customer in China.

It's very helpful. Thank you.

Thank you. And our next question comes from Stacy Rasgon of Bernstein Research. Your line is now open.

Hi, guys. Thanks for taking my question. I wanted to ask a little about the three-year model. That model was, I guess, starting in 2019 and going forward for a few years. But 2019 obviously is going to be weaker than anticipated. How does the weakness in 2019 affect that through your model at all? And where does the – I guess, additional growth would have to come in the last two years to make up for the weakness in the first two, where does that growth comes from?

So, Stacy, it was actually 2018 through 2021. So, the base year was 2018. Really, we don't see that being a material impact. I think what we could see is some of the categories, the areas that we have, changing somewhat, but we believe that, in total, we're still on track. But we have to go through the process and it depends obviously on how long this slowdown in industry were to continue. But, really, the key for this is the design wins and the company specific ramp in revenue that we have associated with that where we continue to be very encouraged in the growth areas of automotive that we talked about, specifically in radar in the near term for level 2 and 3. The crossover processors that continue to be a strong contributor and will continue to add more and more as we go forward in the future quarters with the increased revenue associated with that. And clearly, 5G representing an opportunity above what we actually had in the growth guidelines at that time. So, I think we're still in the ballpark associated with it, but we clearly have to do some work and understand how long it takes us to get through this industry slowdown to actually be able to confirm that, Stacy.

Got it. Thanks. And, I guess, to follow-up on that around auto, so the auto business for the first three quarters of the year with the guidance down, call it, like mid to high single digits and with the strength in radar and BMS and some of the others that are growing quite a bit, it implies sort of the more traditional part of the portfolio is even worse than that. So, obviously, SAAR is down this year, but it's not going to be down I don't think that much. Is this just inventory correction? And if that's the case, is it reasonable to expect that to rebound as the inventories sort of flush out as we drive into next year? Would it be reasonable to assume that we could do better than normal next year coming off of this?

Stacy, this is Kurt. Let me try and answer that. So, first of all, yes, the latest SAAR forecast – and you know that we typically use IHS – has deteriorated unfortunately again. So, I think a quarter ago, we talked about a 3% SAAR decline this year. The latest IHS forecast we got just 10 days ago was minus 4%. So, 4% decline. And actually, if you look through the report from the big tier 1s, so like Continental, Aaptiv, Bosch and others, they estimate more like 5%. Now, our model still sits on IHS, which is from third party source, but indeed it has deteriorated. Obviously, somewhere in the minus 4% to minus 5% area. Now, coming back to your question, yes, this inventory effect is something we've seen through the past cycles too, which means that the auto semi market declines stronger going into this and bouncing back stronger going out of it. The question is obviously when is the moment of change of direction, which I don't dare to forecast. The only thing I would tell you is that, if you look on an annual growth basis into our quarters, then in quarter two, we did a report a minus 10% decline in automotive. And the quarter 3 guide which we just gave you is now minus 7%. So, we see at least from Q2 – against Q2 comparison perspective annually, it's getting slightly better. If this is the indication of things really moving out, I don't know, but at least also the SAAR is reported by IHS in the second half to get slightly better led by China because China seasonally always has a much better second half than the first half. And IHS is thinking about a 14% second half over first half growth in other production in China. I don't know if that is true, but certainly directionally it should be right that this is changing now second half to first half.

Got it. Thank you.

Right. Thanks Stacy.

Thank you. And our next question comes from Ross Seymore of Deutsche Bank. Your line is open.

Hi, guys. Thanks for letting me ask you question. I want to focus on the industrial and IOT side of things. I know the crossover processors are a great source of growth and you guys have been in line with your guidance in the last quarter and seem to be accelerating seasonally in the third quarter. But, overall, it's still down about 15% year-over-year. Can you talk a little bit about what's weighing on that? Is it just the inventory burn in the channel or is there anything else? And how do you expect that growth to resume? Somewhat similar to the last question, once that inventory burn is done, is there kind of a super-sized reacceleration as the channel starts to refill.

So, Ross, I think you're absolutely right. If you look at it, our industrial and IoT for the last couple of quarters had been down around 14% year-over-year. And our guidance, while up 8% in Q3, would still be down around that same level year-over-year. I don't think that we can be specific on the inventory levels. You've got to remember that on industrial and IoT, probably 80% of that goes to the distribution channel. And so, we're really kind of at the mercy, if you will, of our distribution partners to understand what's happening with the customers. There's not any perception of ongoing inventory. It's really this quagmire. What I said last quarter, the market is kind of frozen, specifically in China, with the fear about what's going to happen in the trade tensions and we don't see a significant improvement overall, although I do think we see a little bit of improvement in China, but at the same time we've seen a weakening in Europe, in the US that kind of offsets that. So in total, we're kind of in the same position in industrial and IoT. Now, at the same point, as you look at the new design wins that we have in the crossover areas as those begin to ramp, we should see a revenue contribution from that, but that's going to be at a slow rate and it'll be a positive contribution, but it won't move the needle significantly on any individual quarter. It's more of the cumulative impact of those design wins and how they get deployed in the market, which clearly should put us in a better position as we go out a few quarters.

That's helpful. And for my follow-up, I just want to switch over to the com infrastructure and other segment. You talked about the 5G side pausing a bit. Can you just walk through how you see that rolling out for the different stages of 5G and maybe remind us what percentage roughly of that kind of 21%, 22% of your total revenues in that segment the com infrastructure side truly represents?

Yeah. On a percentage of that, it's…

Probably, two-thirds between the RF power and digital networking business.

Yeah. If you include digital networking associated, it was two-thirds. It's probably about a half for the RF power or just slightly under half based on the growth we've seen. But, really, the growth that we've seen, Ross, has been in the massive MIMO deployment where they're expanding the capacity associated with their installed infrastructure. And now, in the future, when they move to 5G deployments, they can upgrade that with a software deployment to be able to facilitate 5G. So, really, what we're seeing that's creating a significant increase in revenue has been the massive MIMO deployment and not 5G per se. We've seen some 5G impact, but it's really been much more significantly weighted towards massive MIMO. And we basically have a pauses, as we've been saying that we would anticipate a pause after our customers are ramping up their supply chain. We still see very positive scenario in what's going on and, clearly, continue deployment through the rest of this year and next year in massive MIMO and believe our successes is quite positive in that area. And then, we would anticipate seeing the 5G ramp itself happening much more strongly in 2020. And it kind of depends on when it gets rolled out in China. We've seen some pull in of the rollout of 5G base stations in China as they appear to want to accelerate their 5G deployment.

Thank you.

Thanks Ross.

Thank you. And our next question comes from Vivek Arya from Bank of America Merrill Lynch. You're line is now open.

Thanks for taking my question. I had two as well. First on gross margins, I believe, Peter, you mentioned that you're still kind of targeting 55% exiting Q4. So, that would be about 130 basis points or so of sequential improvement. I'm curious, what are the puts and takes around that? What kind of revenue or mix assumptions underlie that? Because usually your Q4, that has been up. Some years, it's been down. Some years – if I assume it's flat, that would signal some year-on-year sales decline. So, I'm just curious to understand what is the sensitivity of gross margins to that kind of revenue profile.

Well, what I've talked about in the past, I've said based on flat revenue from Q4 2018 to Q4 2019, we would move up from 53% to 55%. And I talked about – we saw some normal headwinds from price, so ASP, and they would be offset by mix. So, we had about 230 basis points of self-help and I think just over half of that was in supply pricing or maybe just less than half. So, where am I at the moment? So, at the moment, I'm really, really confident on the self-help part. So, I think that's in the bag and we started to see some of the impacts of that from Q1 into Q2 and Q2 into Q3. At the moment, I really don't know where we'll end up on revenue. As we said in our comments, although the situation hasn't gotten worse, versus where we were 90 days ago, if it hasn't strengthened, then we feel a little bit more uncomfortable than we did then. So, flat revenue, I would say 55% is in the bag. If revenue is not flat of Q4, then previously we've said – and it's a very, very rough guideline, a 5% drop in revenue is about 100 basis points of impact to gross margin. But it really depends on what the mix of the change is and is it internal or external. So, it's not an absolute serving. I guess in terms of things I have under our control, very, very confident, incrementally more confident than I was three months ago. But we'll need to wait and see how the revenue plays out for Q4. Definitely I think we've done the right thing structurally and it will put us in good shape for when things come back.

Thanks. And for my follow-up, I'm curious about the 30% of your business in automotive tied to ADAS and electrification where you – I think breaking the past, set at 25%, 30% growth target, how did that do in Q2 and what are the trends in the second half? Do you think the macro environment is impacting that growth part of the autos business or there is a secular aspect to it and that is still continuing for your original targets? Thank you.

I'll make a couple of comments and I'll let Kurt talk. I think the fact that – the thing is, as we see clearly a softness in auto demand, it does have some impact on those growth areas as well. They're not ramping up quite as fast. They still are growing very significantly, but not quite as fast as we would have been anticipated originally. So, it does have some impact, but clearly we see a strong growth associated with those areas and specifically radar.

Yeah, Rick. So, clearly, we do confirm double-digit growth. We did achieve that in Q2 as expected. But with the SAAR being maybe then more in the minus 5% area versus a zero or plus 2%, obviously, there is some impact. But this is nothing of any relevance for the mid to longer term because the rents are still very much dependent on penetration of the functionality, as Rick had laid out for radar in his prepared remarks. So, over and above, we are very confident to continue to expect 25% to 30% revenue growth over the next three years in that portion of the auto business. And I just want to remind you again that it's mainly ADAS radar, digital clusters and somewhat later, because it comes today from a smaller base, the battery management business.

Thank you.

Thank you. And our next question comes from Blayne Curtis of Barclays. You're line is now open.

Hey, guys. Thanks for taking my questions. I have two. Just one, just on the OpEx side, I noticed you moved about $80 million to assets held for sale. I know it's fairly small. Just wondering if you could comment on that. Or if you can't, just maybe – just strategically, any comments on that kind of initiative. And then, you mentioned UWB, maybe sounds like that'll get maybe some adoption on the mobile side this year in the market. I'm just kind of curious for you, when you see that ramping, anyway you can kind of size that market? Thanks.

So, the asset held for sale, we can't tell you specifically what it is, but we're doing due diligence to dispose of a very small part of our business at the moment and hopefully we will wrap that up before the end of the year. So, we've moved that asset to held for sale.

And it's non-strategic in a business that we just felt like was better off being in somebody else's hands than ours. On ultra-wideband, it really won't start shipping till 2020, not this year. And we're extremely excited about the opportunity there. In fact, I'm going to let Kurt make some comments on that as well.

Yeah. So, it's really an equal system place which leverages, is an excellent way, our strong foothold from a technology end market perspective and secure cars as well as mobile transactions and security. Revenue impact, we will start to see by middle of next year, ramping. We think this will be a market which is almost a billion in 2024. And as Rick explained earlier, with our first mover advantage, with our strong foothold and creation of the ecosystem itself, we do think we will have a leading market share in that field.

So, very exciting, Blayne.

Thanks, guys.

Thank you. And our question comes from Matt Ramsay of Cowen. Your line is now open.

Thank you very much. Good morning. I just wanted to follow-up to the last question there on UWB. Kurt, maybe you could talk a little bit about what other standards are out there that are competing with UWB? And then, on the flip side, are there other ecosystem partners and potentially other chipmakers that are involved such that this could be an industrywide standard as it rolls out? Thanks.

Yeah. So, on the standard side, there is an IEEE initiative underway for a very first standardization of the physical layer hardware protocol to make sure that it means different vendors can ship compatible product. That has been underway for a while. It is supported by all the key companies through the whole value chain. So, clearly, any ingredient from our experience, which is needed for a successful connectivity standard is fully in place. Relative to competing technologies of standard, the only one which directionally comes somewhere in the proximity, but really doesn't get there really is Bluetooth low energy, which has some ranging capability, but it lacks by far the precision of ultra-wideband. So, I just want to reiterate, the key feature of ultrawideband is it measures time of flight and through that it can detect exactly where the communicating objects are relative to each other. So, it's all about precision in distance measurement. Bluetooth low energy can do a little bit of that, but it's far from it from a precision perspective. That's why our key partners along the value chain have clearly decided for ultrawideband. It's a very, very clear and definitive choice in that field. The other one which maybe didn't come across clearly, a lot of this has to do with security. So, we always play in door access or car access applications which we are seeing here, together with our secure element. So, it is the combination of the secure element and the ultrawideband connectivity technology which makes the use case fly. And that combination, I dare to say, is pretty unique.

Got you. Thanks for that color. Just as a quick follow-up, I continue to get the question from investors, so I'll just bring it up again, the visibility towards doubling the Marvel revenue run rate of the business you're acquiring. If you guys have any more color on design win pipeline visibility or I guess a focus on Wi-Fi 6? It's just a question that keeps coming up, so I'm just relaying it along. Thanks very much.

Sure. I think our confidence comes from the combination of the portfolio. They're leading technology and Wi-Fi 6, our broad-based distribution channel that's much more broad based than Marvel – while Marvel has a fine distribution channel, our position in distribution clearly puts us in a better basis. And the fact is, as we talk about our processing customers, two-thirds of our design wins have had Wi-Fi connectivity associated with it. And being able to supply a Wi-Fi 6 solution in combination with our processing puts us in a really unique position to be able to grow that business much faster. So, I think all of those things are the combination that really gives us the ability to project doubling that business in a relatively short period of time. And the reason why it was so critical to us to be able to meet our customers' requirements. We're very fortunate to have the funds available from the Qualcomm breakup fee to be able to put connectivity in place, and so we're looking forward to closing the transaction, so we can offer a complete solution for our customers.

So, let me maybe just add that, now we are in some way into this process, although with customers. Clearly, the customer reactions are very positive and very reconfirming on the fit of the portfolio complementary nature of Wi-Fi 6 with our [indiscernible]. So, what was theory in the first place, obviously, we get now more specific feedback from customers, and that's both for industrial as well as for auto. It's very reconfirming to the numbers which we have put out.

Thank you.

Sonya, we'll take one last question this morning please.

And our last question comes from Toshiya Hari of Goldman Sachs. Your line is now open.

Hey, guys. Thanks very much for squeezing me in. I just had one on capital allocation. After the Marvell acquisition, assuming it closed in line with schedule, how should we think about the balance between M&A and dividends and buybacks? Would it be fair to assume that you feel like your technology and IP portfolio is somewhat complete post Marvell or would M&A continue to play a critical role in your strategy? Thank you.

Yeah. Thanks. I think we have most of the critical components that we really feel like we need going forward. I'm sure that we'll always have some tuck-in acquisitions that we need to do to either strengthen a technical position or with some other pieces that happen, but the Marvell acquisition on the connectivity side is clearly one that was significant and one that we were getting a lot of demand from our customers. So, I think that really builds out most of the requirement. I think as we look at analog attach, we are trying to see what we can do to improve that. That's a focus area for us. Fortunately, we have a lot of internal capability associated with that, specifically in the [indiscernible] that we ship alongside of our processing capability to drive a complete solution. But I think you're absolutely right, most of our focus on the cash return post the Marvell transaction will be focused on share repurchase and our dividend as we move forward. And we've talked about that we would anticipate or plan to increase our dividend on an annual basis moving it up to more in line with our normal semiconductor industry peers.

Thank you.

So thanks everyone for joining us this morning. We clearly felt like that we had good performance in Q2. And while we see improvements up that Q2 base continuing, they're not at the same rate we would have anticipated 90 days ago as we have seen a little bit of a reset in the marketplace based on the continued trade friction and the uncertainty that's now beginning to have an impact in other regions of the world as well. But we're encouraged about our design wins and the portfolio we have and continuing to be in a position to outgrow the market going forward and create and continue to increase significant shareholder value. Thank you very much.

Thank you, everyone. Appreciate your attendance today. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.