管理層發言
Good morning. I am Ryan Ghazaeri, vice president of investor relations and corporate strategy. Welcome to our earnings call for the second quarter of 26. Before we begin this morning's call, I would like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. These statements are not guarantees of future performance, and are subject to various risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled forward-looking statements in our earnings material for more detail. Presentation materials for today's call were posted this morning on the investors section of Visteon's website. Joining us today are Sachin S. Lawande, president and chief executive officer and Jerome J. Rouquet, senior vice president and chief financial officer. We have scheduled the call for 1 hour, and we will open the lines for questions after Sachin and Jerome's prepared remarks. Please limit your participation to 1 question and 1 follow-up. Thank you again for joining us. Now I will turn over the call to Sachin.
Thank you, Ryan, and good morning, everyone. Visteon delivered another quarter of solid execution despite a challenging industry production environment. Customer vehicle production declined approximately 5% during the quarter yet our sales remained essentially flat year over year resulting in approximately 4 percentage points of market outperformance. Performance was driven by the continued ramp of recent launches, particularly in Europe and India, underscoring the benefits of our diversified customer base and expanding product portfolio. Adjusted EBITDA was $116 million representing a 12.1% margin while adjusted free cash flow remained positive. Our balance sheet continues to be healthy ending the quarter with $650 million in cash providing flexibility to invest in growth while returning capital to shareholders. Beyond the financial results, we continue to execute on the strategic priorities we outlined at Investor Day. We launched 24 new products across 11 automakers, and secured $2 billion of new business awards bringing first half bookings to $3 billion and keeping us on track for our full year $6 billion target. We also expanded our SmartCore high performance compute business with another premium brand under the Geely Group, further strengthening our position in AI-enabled cockpit computing and reinforcing our confidence in the long-term growth opportunity for that product offering. Finally, this morning, we announced a $200 million accelerated share repurchase program representing the next step in executing the capital allocation framework we outlined at our Investor Day in June. Let me now turn to our second quarter sales performance on Page 3. This slide shows our regional sales performance in what remained a challenging production environment. Customer vehicle production declined in every major region during the quarter, yet our diversified customer base, recent product launches, and disciplined execution enabled us to outperform underlying market trends. Starting with The Americas, sales reflected the headwinds we have discussed previously: lower customer production, reduced BMS volumes with GM, and Ford vehicle discontinuations. Those headwinds were partially offset by the continued ramp of Nissan multi-display systems and Volkswagen infotainment programs allowing us to perform broadly in line with the underlying customer vehicle production. Europe was our strongest performing region; sales increased despite weaker customer production, driven by excellent launch execution. Our panoramic display program with Audi, multi-display systems with Renault, and our new Mercedes display launches all contributed to strong regional momentum and meaningful market outperformance. In Rest of Asia, underlying demand remained strong. Growth in India more than offset currency headwinds and the roll-off of a Mazda program in Japan. SmartCore programs with Mahindra, along with infotainment launches with Tata, and continued two-wheeler growth supported another quarter of solid execution. Finally, in China, our sales reflected continued weakness in the value segment of the market following the changes in government policies and incentives, and the ongoing loss of market share of international OEMs. However, the premium domestic OEM segment remained considerably more resilient. That is an important distinction because our strategy is increasingly aligned with those premium domestic manufacturers. During the quarter, cockpit domain controller programs with customers such as Geely continued to build momentum. And with our high performance compute launches starting later this year, we believe we are well positioned in the fastest growing portion of the Chinese market. Overall, the quarter demonstrated that while customer production remained under pressure, our regional execution, diversified customer portfolio, and ongoing launch cadence enabled us to deliver a resilient sales performance and position the business well for the balance of the year. Turning to Page 4. This quarter was another demonstration of Visteon's ability to execute at scale. We successfully launched 24 new products across 11 automakers, keeping us on pace for another year of high launch activity providing a strong foundation for second half growth. More than half were display products, reflecting the industry's continued migration toward larger, higher-content digital cockpits, an area where Visteon has established clear technology leadership. The Mercedes-Benz S-Class super screen highlighted on the right is an excellent example. The system integrates two large displays under a single cover lens creating a seamless premium cockpit experience. It also incorporates advanced features such as switchable active privacy for the passenger display illustrating the increasing software and engineering content in modern display systems. Importantly, our momentum with Mercedes extends beyond this flagship vehicle. During the quarter, we also launched display systems on other high-volume Mercedes platforms expanding our premium display technology across the OEM's portfolio. We continue to broaden our customer and geographic footprint in the quarter. We launched a dual display system for Nissan's flagship mini the Elgrand, a center display for Renault Austral, digital clusters with Hyundai in India, and multiple additional display programs supporting our growth across Europe and Asia. The quarter also highlighted the progress we are making beyond passenger vehicles. We launched the digital cockpit platform on Royal Enfield's first electric motorcycle the Flying Flea, as well as a connected digital cluster with Hero Motorcycles. These programs demonstrate how we are leveraging our proven cockpit technologies into adjacent mobility markets, where digitalization is accelerating and our existing platforms provide solutions at an attractive cost structure. Overall, these launches reinforce several important trends. First, our portfolio continues to migrate toward higher value and software-defined cockpit technologies. Second, we are successfully expanding across premium and mainstream vehicles and into adjacent mobility segments. And finally, our ability to execute a high volume of complex launches around the globe continues to be an important competitive advantage and supports confidence in our long-term growth outlook. Turning to Page 5. New business wins totaled $2 billion during the quarter, bringing our first half bookings to $3 billion and keeping us on track for our $6 billion full year target. Approximately 45% of our wins in the second quarter came from North America, where we added two customers in the commercial vehicle segment in addition to winning business with our traditional passenger car customers. Asia represented about 30% of bookings, with Europe contributing the remaining 25%, resulting in a well-balanced geographic mix. Importantly, the quality of our bookings continues to improve. Approximately 60% of first half wins came from our strategic software-defined vehicle portfolio including SmartCore cockpit domain controllers, high performance compute platforms, and advanced display systems. In addition, we secured approximately $340 million of new business in commercial vehicles and two-wheelers demonstrating continued progress in expanding beyond traditional passenger vehicles. Let me highlight a few of the strategic new business wins in the second quarter. First, we secured another SmartCore high performance compute program with another premium brand under the Geely Group. This expands our HPC footprint within the group, adds another premium vehicle brand to our customer base, and further strengthens our leadership position in AI-enabled cockpit computing—an area where we continue to see significant long-term growth opportunities. Second, we made important progress in commercial vehicles. We added two new commercial vehicle customers in North America, including our first integrated cockpit win with a specialty vehicle manufacturer that includes digital cluster, center display, and surround view system. We also secured the surround view system business with a leading global commercial vehicle manufacturer for the North American brands. These wins extend our commercial vehicle strategy beyond Europe and demonstrate that our cockpit platform is increasingly relevant across multiple mobility segments. Third, we have won multiple display programs with an OEM in North America across multiple future vehicle platforms. These awards support our transition towards software-defined cockpit products with this customer and strengthens our position for future business with this important OEM. Finally, we added a Japanese OEM to our customer portfolio with our first win for a digital cluster program that will launch on multiple vehicles for Japan and U.S. markets. Beyond the immediate revenue opportunity, this represents another important step in broadening our customer base in Japan—a market where we have consistently demonstrated our ability to expand relationships over time. Overall, our first half bookings reinforced the strategy we presented at Investor Day. They are increasingly concentrated in higher value software-defined cockpit products, expanding into adjacent mobility markets, and continuing to diversify both our customer base and geographic exposure. Turning to Page 6. Let me turn to our outlook for the balance of the year. The first half demonstrated that our strategy is translating into execution. We delivered $1.9 billion of sales, $3 billion of new business wins, and 44 product launches creating a solid foundation for both our full year outlook and our longer-term growth objectives. Looking ahead, we expect Visteon sales to grow in the second half compared to prior year, supported by the ramp of recently launched programs and a strong second half launch schedule. This is despite customer vehicle production being forecasted to be down by about 5% in the same period. Our sales are expected to grow in all regions except in the Americas. The launch of new cluster programs with Toyota in North America will be partially offsetting the headwinds from lower customer production, lower BMS volumes and the roll off of a legacy cluster program with GM. In Europe, we expect another period of strong execution with mid-teens sales growth despite lower customer vehicle production. Our recently launched display programs with Mercedes, Audi, and Renault are doing very well, and we will also start production of our SmartCore cockpit domain controller with a premium German OEM. In the rest of Asia, we also expect mid-teens growth with the ramp-up of a SmartCore program with Mahindra, display launches with Toyota, and ramp up of programs with Hyundai and Tata. And in China, although customer production is forecasted to decline, we expect to return to low single-digit sales growth as our first SmartCore HPC programs launch with Geely and Chery. Overall, we expect mid to high single-digit outperformance in the second half. While weaker customer production will continue to temper industry growth, our launch cadence is expected to more than offset those headwinds supporting sales growth this year while building the foundation for stronger growth in 2027. Turning to Page 7. Let me conclude by summarizing what we have accomplished this quarter. First, we continue to outperform the market. Despite weaker customer production across all major regions, our recent product launches enabled us to deliver approximately 4 percentage points of market outperformance. Second, we continued to strengthen the business for the future. We secured $2 billion of new business awards, the majority aligned to software-defined vehicle technologies and adjacent growth markets, while maintaining a robust launch cadence that supports both our second half outlook and our longer-term growth objectives. Third, we remained disciplined operationally and financially. We continued to make progress recovering higher memory costs, secured the supply needed to support upcoming launches, and generated positive free cash flow. And finally, this morning's announcement of our $200 million accelerated share repurchase program represents the next step in the capital allocation framework we outlined at Investor Day. Overall, this quarter provided another important proof point that the strategy we outlined at Investor Day is supported by our operational execution. We remain confident in our outlook for the second half of 26 and in the long-term growth opportunities ahead. With that, let me turn the call over to Jerome, who will review our financial results in more detail.
Thank you, Sachin, and good morning, everyone. We delivered financial results in the second quarter that demonstrate our resiliency in what remains a dynamic operating environment. Our performance reinforces that we continue to make progress on the commercial and cost actions we outlined earlier this year. For the quarter, sales were $960 million down 1% from the prior year, while outperforming our customer weighted production with growth over market of 4%. This was driven by strong launch execution on customer programs most notably in Europe and in India. Additionally, we progressed well with our semiconductor cost recoveries in Q2, and we secured agreements with many customers allowing us to offset the increase in memory cost incurred in the second quarter. Adjusted EBITDA was $116 million representing a margin of 12.1%, an improvement of more than 1 point from the first quarter reflecting the progress we have made with our customer recoveries and efficiency improvements. Adjusted free cash flow was $20 million positive for the quarter despite an increase in inventory, as we continue to build resilience in our supply chain and due to the timing of cash settlements of previously accrued tax expenses. In June, we completed the acquisition of an engineering service company for $20 million further enhancing our functional safety and safety system architecture capabilities. We also returned $16 million to shareholders in the form of dividends and share repurchases. We ended the quarter with $650 million of cash, and net cash of $351 million allows us to deploy a significant amount to shareholders in the second half of the year. Turning to Page 10. Sales for the quarter were $916 million, a decrease of $9 million year-over-year or 1%, primarily driven by decline in customer production volumes and the non-recurrence of favorable one-time commercial items in the second quarter of 25. These headwinds were largely offset by a solid growth over market of 4%, when excluding pricing, customer recoveries, and currency. The additional memory cost recoveries we secured with our customers in Q2 were sufficient to offset our normal pricing reductions. Currency impact in the quarter was largely neutral on the sell side. EBITDA was $116 million or 12.1% for the quarter, our best EBITDA margin since Q3 of 25. This was driven primarily by the recoveries we secured in the quarter combined with strong cost discipline. On a year-over-year basis, EBITDA declined $18 million. As a reminder, and as we noted in our Q2 25 earnings call, Q2 25 EBITDA was exceptional and benefited from $10 million of several non-recurring items mostly commercial in nature. Besides these $10 million, we also had $8 million of negative year-over-year currency impact, mostly driven by the devaluation of the Indian rupee and the Japanese yen as well as the appreciation of the Mexican peso. These two factors explain in simple terms the year-over-year decline in EBITDA. At a more granular level, year-over-year engineering increased as we continue to invest in the next generation of software-defined vehicle products, mostly for the European, Indian, and Chinese markets. The engineering services acquisitions we have made last year as well as the acquisition I mentioned earlier also increased our engineering cost run rate. These additional costs were mostly offset by operational efficiencies. Finally, as cost recovery is a critical component of 2026 results, I would like to provide some more details on this topic. With regards to recovery agreements with our customers, we made meaningful progress in the quarter. Consistent with the assumptions embedded in our guidance and highlighted in Q1, we were able to recover most of the memory cost inflation incurred in Q2 with retracted agreements compensating for the lack of deals with some customers. We continue to meet with our customers and expect to close the agreements that remain open in the second half of the year. Overall, our performance in the quarter was strong when adjusting for currency, was in line with our expectations and represents the sequential improvements that we were anticipating going into the year driven by recoveries, product costing actions, vertical integration and engineering productivity. Turning to Page 11. Adjusted free cash flow was $20 million in the quarter, and negative $3 million for the first half. The first half reflects several key dynamics. First, adjusted EBITDA in the first half was primarily impacted by the timing of semiconductor cost recovery negotiations which are expected to be fully closed in the second half of the year. On the trade working capital front, this line item has been a use of cash for the first half of the year. This has been a deliberate decision driven primarily by specific actions— increasing inventory levels to support higher minimum safety stock levels and to allow us to build better supply chain resilience. Cash taxes were higher in the second quarter, due to a one-time tax settlement in India related to prior years. Consistent with prior years and as we expected, the first half of the year generally has more cash outflows for items like the annual compensation, which is paid in Q1. While these items limited cash generation for the first half, we believe we will be able to generate cash to the levels we are guiding to for the full year. And finally, capital expenditures were in line with our expectations as we continued to support new program launches, capacity expansion in India, and the modernization of our IT infrastructure. During the second quarter, we completed the refinancing of our $300 million term loan facility and $400 million revolving credit facility, extending the maturity to 2031 and giving us a flexible capital structure to execute our capital allocation plan. We ended the quarter with $650 million of cash and $351 million of net cash after capital allocation. As we highlighted at our Investor Day, our current cash levels position us well to deploy capital in a disciplined and balanced manner. Turning to Page 12. Consistent with our Investor Day messaging, we are reaffirming our full year guidance across all key financial metrics. For sales, we continue to expect between $3.625 billion and $3.825 billion and are trending towards the high end of the range at $3.8 billion. Our sales reflect our year-to-date performance, continued progress on customer recoveries, as well as a strong second half launch cadence. Partially offset by softer customer production. Our launch cadence includes digital cluster and display launches with our top growing OEMs, as well as large SmartCore CDC and high performance compute program launches in China. With regards to adjusted EBITDA, we continue to expect between $455 million and $495 million and are trending towards the midpoint of the range of approximately $475 million. As mentioned during our Investor Day in June, cost pressures initially seen in memory are now extending to other purchase components, making it difficult to fully offset inflation in 2026 despite our teams taking further actions to recover and offset these additional costs. In spite of these headwinds, we expect margins to improve throughout the rest of the year driven by more customer recoveries and the ramp up of our cost initiatives across product costing, vertical integration, and engineering productivity. Finally, with regards to adjusted free cash flow, we continue to expect between $170 million to $210 million while trending towards the low end of the range of $170 million and having a good line of sight to the second half cash generation. EBITDA in H2 will support higher cash flow for the remainder of the year as recoveries and cost actions carry margins toward the full year guide. We also expect working capital to improve with some consumption of the first half inventory build while receiving cash on recovery agreements we secured late in the second quarter. Another significant piece of the second half performance is related to first half items that will not reoccur such as our annual incentive compensation payout, the India tax settlement, and other seasonal cash outflows. Overall, we plan to maintain more elevated inventory levels through the balance of the year—a deliberate choice to protect our customers' launches and production schedules given the current semiconductor and memory environment. Nevertheless, the underlying cash generation capability of the business remains strong and we have good visibility to a robust cash inflow in the second half. Turning to Page 13. I would like to close with our capital allocation announcement this morning. With the support of our Board of Directors, we have entered into a $200 million accelerated share repurchase agreement, which we expect to complete by early Q4 of this year. The program will exhaust the remaining capacity of our 2023 authorization and will utilize a meaningful portion of the new $800 million authorization we announced at Investor Day. At our Investor Day, we targeted to return approximately $1 billion of cash to shareholders between 2026 and 2029. We also highlighted that we need $150 million of net cash to run the business. Our net cash position at the end of June was approximately $350 million and therefore supports the near-term deployment of $200 million. The ASR is the first step in delivering on our $1 billion target. It allows us to retire a significant number of shares immediately. It demonstrates a clear pace of execution as we repurchase $800 million over the plan period and it provides what we believe is a compelling use of our capital at current valuation levels. We have intentionally matched the completion window of the ASR with our second half cash generation, giving us flexibility to execute capital returns in excess of the accelerated program in Q4 while maintaining the minimum net cash framework we outlined at Investor Day. Importantly, even after funding the announced program, we maintain a healthy balance sheet and flexibility to invest organically in the business going forward, as well as to pursue disciplined bolt-on M&A as we did this quarter with our acquisition. In summary, the second quarter reflects a resilient underlying performance in a challenging production environment, continued progress on recoveries and cost improvements, and an important step in delivering on the capital return framework we outlined at our Investor Day. We remain confident in our full year outlook and in the long-term opportunity ahead as we execute on the plan that we outlined in June. Thank you for your time today, I would like now to open the call for your questions.
分析師問答
At this time, if you would like to ask an audio question, please press * then the number 1 on your telephone keypad. Again, that is * and the number 1. We will pause just a moment to compile the Q&A roster. Your first question comes from the line of Tom Narion of RBC Capital Markets. Tom? Go ahead.
Oh, hi. This is Tom Aceto on for Tom. Thanks for taking the question. First, at your Investor Day, you guys flagged that Ford and GM were sort of moving to insource their CDCs. Given that several of your key Chinese OEM wins on CDCs are with these large, tech-savvy players like Geely and Chery, how do you think about the insourcing risk from the Chinese OEMs over time? Do you think that risk could be higher or lower in China relative to some of the Western OEMs? And then I have a follow-up.
Yes. Let me take this question and answer it a little more broadly because I suspect that many would have a similar question today. Both Ford and GM are very important customers and we continue to engage with them on new business opportunities. You look at our first half new business wins, about 20% of those wins came from these two OEMs, mostly around displays. As I mentioned on Investor Day, our portfolio will change from traditional products to more software-defined vehicle products, starting with displays and eventually CDCs and HPCs. Regarding insourcing and what we see and how we think about it: the pace of technological change in the industry is accelerating, and it continues to accelerate. OEMs launching CDCs must also deal with HPC and AI and many other technologies coming at the industry rapidly. This challenge is even greater for larger OEMs that have multiple vehicle segments and regions to support. Large Chinese OEMs are actively collaborating with strategic suppliers for specific types of products and technologies. That is one reason why we have been successful in China with CDC and now with HPC. Coming to Ford and GM, with the work that we have been doing on advanced technologies with HPC and AI, and launching and gaining experience in China ahead of many others, we expect to find areas to collaborate with these OEMs on future programs, especially around these technologies. I should also mention that the sales plan we presented at Investor Day was based on a very thorough evaluation process and did not include unsubstantiated sales based on hope. That does not mean we do not have a pipeline of opportunities to pursue and potentially outperform the sales plan. We have a line of sight to multiple such opportunities with these two customers that we are actively pursuing. So in short: insourcing is a risk that we take seriously, but the complexity and speed of technology adoption, and the need for ongoing software and systems capability, create collaborative opportunities for us with OEMs both in China and in the West.
Gotcha. Very helpful. As a follow-up, you demonstrated some pretty resilient growth over market through the first half even given the tough production environment. Given that, is there a specific gating factor preventing you from being more aggressive on buybacks today? Especially considering where the stock is trading. In addition to leaving some room for M&A, is there a minimum cash or net cash target that we should be thinking about? Thanks.
It is Jerome. I will take that question. You are absolutely right. We indicated during Investor Day that our net cash target was $150 million and we finished the quarter with $350 million of net cash on the balance sheet. Therefore, having $200 million that we could deploy essentially right away. We indicated, again, during Investor Day that we would deploy this pretty quickly. That is really the rationale for the ASR that we have announced today—$200 million that will allow us to retire shares pretty quickly. It is the first step in deploying a large amount of capital towards shareholders. We have committed to return close to $1 billion over the period of 2026 to 2029, in the form of dividends but mostly share repurchases. That is what we are executing towards. So it is really following up on our plan as we laid it out during Investor Day.
Your next question comes from the line of Rajat Gupta of JPMorgan. Take it away.
Thanks for taking the question. I wanted to double click a little bit on the recent Micron agreement. Curious if you are able to provide any more details on what it gets you—any early read on pricing? Is this more of a price agreement, more of a supply agreement just to lock that in for the next couple of years? Any more details you can give us around that would be helpful. I have a quick follow-up.
Thank you. With the recent memory technology changes, the kinds of memories that we use in automotive have been in tight supply all this year. It is expected to get more challenging in terms of supply next year. Automotive is a long-cycle industry, and besides price, we need long-term product availability and, more importantly, controlled transitions when older memory technologies are being retired. The agreement we signed with Micron gives us better assurance on supply with better long-term visibility into availability of memory. It also gives us better price predictability with clearer commercial terms than if we did not have such an agreement. Very importantly, it gives us insights on planning that enable us to reduce risk of these long-cycle automotive programs. These three things—supply assurance, pricing predictability, and better planning—are essentially what we get from this agreement. Now, even with the agreement in place, we anticipate 2027 to be quite challenging in terms of getting sufficient supply to meet our demand as we see it today. We have been working with multiple alternate suppliers to bring them on board to close any gap and we will know more as we progress further in the second half of this year. We are also redesigning some products so that we have more flexibility in using memory parts from different suppliers. The combination of this supply agreement with Micron, additional memory alternate suppliers we are bringing on board, and redesigns gives us flexibility to tide through 2027, which we expect to be the more challenging year, and hopefully things should start to get slightly better in 2028 and beyond as more capacity comes online to provide the industry with memory.
That is very helpful color. I wanted to follow up on the SmartCore wins and the overall SmartCore opportunity, starting in China. Can you give us an update on how the margins are coming through as you start ramping production and shipments? Any early read relative to corporate average? Thanks.
In any complex programs like SmartCore HPC that attract a lot of engineering because of the heavier content, launch margins are going to be a little lower than steady-state higher-volume margins. 2026 is going to be our launch year, the second half, also extending into the first half of 2027. Real volume shipments would begin in 2028 and onwards. We expect margins to gradually track the higher volumes and improve into 2028 and beyond. We expect them to be very similar to our average margin at steady state. I would not want you to think of them as necessarily being a drag on margins; as the volumes increase, we expect improvement from there.
Your next question comes from the line of Emmanuel Rosner of Wolfe Research. Emmanuel, take it away.
Thank you. I wanted to follow up on the topic of insourcing. It felt like for the longest time this was an ongoing worry that OEMs might insource, but OEMs were rarely able to pull it off due to execution problems. Now it seems like it is happening. From your perspective, what changes have enabled OEMs to do it? What challenges are they facing? And what are the gating factors—why would it be in one product line and not another? How do you see this evolving more holistically?
I would not characterize it as something new or different. Over the years, we've seen OEMs express intent to insource at various times and plans sometimes change after they progress further. What we are seeing now is not different from prior periods. It remains extremely difficult to launch CDCs and HPCs doing everything in house, especially for larger OEMs. They face significant complexity in software, systems integration, regional requirements, and ongoing maintenance. We expect OEMs to continue to collaborate with suppliers who can provide the necessary capabilities and support. We believe we can be a collaborative partner to support OEMs in their transitions to these technologies. The experience that companies have had historically suggests that many OEMs will ultimately work with strategic suppliers for complex cockpit electronics rather than fully insourcing all capabilities.
Following up on inflation in DRAM and electronics: when we do our math around your commentary and the implied margin headwinds, it suggests you might absorb perhaps $8–$10 million in 2026 and maybe $20 million in 2027. I am not sure if those numbers are directionally correct. Can you expand on what is driving this? You mentioned inflation extending to other electronics—are you assuming a larger unrecovered headwind in 2027?
Good morning. Let me step back a little bit and explain how things have progressed since the beginning of the year. We are dealing with two big buckets: memory cost increases, which were known at the beginning of the year, and then a second bucket of other component cost inflation that has emerged more recently. For memory cost increases, the impact is approximately 2.5% of our sales, similar to what we indicated during Investor Day. We were slow in Q1 in recovering as anticipated, and we did a good job in Q2 catching up with many customers and securing many memory recovery deals. That allowed us to be roughly neutral from a recovery-minus-cost standpoint in the quarter. We anticipate the few customers where we do not yet have an agreement will be closed in Q3 and possibly Q4 as well, and overall we expect to be on target for memory for the full year. Beyond that, starting in the beginning of the second quarter, we have seen other inflationary cost pressures. We intend to go back to our customers to try to secure recoveries for these costs. It is a second wave: it is always more difficult to go back, but we will do that. At the same time, we are discussing with our suppliers to try to find offsets. So we are tackling both aspects for these other cost increases we have seen since the beginning of the second quarter.
Your next question comes from the line of Joe Spak of UBS. Joe, you have the floor.
Thank you. I want to pick up on the memory covering. It looks like you are basically assuming close to 90% recovery. What I am confused about is why that cannot change in the future with supply contracts, because then you know the price. Why cannot that just be the price you charge and get closer to 100%? Maybe it has to do with what percent of the business the Micron deal covers, which I think Sachin alluded to. Also, some automakers entered into agreements, so does that help as well?
Let me clarify. The Micron agreement certainly helps because it reduces the need for us to go to customers for price increases—we now have more public visibility on agreements. However, the Micron agreement only covers Micron-supplied memory; Micron is not the full extent of memory supply for the industry or for us. There are other memory types and suppliers we must manage. In general, we fully intend to go out to our customers and recover 100% of the memory cost increases next year. Jerome was referring to non-memory semiconductors when he discussed additional inflation—those are a separate matter and are smaller in scope and more widespread. We have more options for those parts compared to memory. So memory recovery is a distinct topic where we expect to recover, and other semiconductor inflation is a different topic where we are addressing recoveries and supplier offsets.
So to be clear, the 100 basis point impact you talked about at Analyst Day was not just memory; it included all electronic-related inflation?
Yes. Correct. It included memory and other electronic-related inflation.
Put it another way: Micron helps materially for the portions it covers, and we are pursuing additional suppliers and redesigns to give us flexibility. We are doing everything we can to be in a strong position for 2027, which we expect to be the more challenging year, and for 2028 as additional capacity comes online.
Your next question comes from the line of Itay Michaeli of TD Cowen. Itay, you have the floor.
I will ask one more on memory cost recovery. Over time, do you expect you will eventually recover all of it, just as a lag effect where inflation is temporarily absorbed? And related to that, to what extent are some of the new customer wins contributing to a lag on recoveries because you may not chase recoveries as aggressively on new business as on existing customers?
For new wins, we are already including the higher cost of memory in those business engagements. The issue is more with existing programs. For 2027, it is a matter of securing supply. The industry will not get as much memory as it needs from traditional suppliers, so we have to secure supply, which may come at a cost, and we fully expect to be able to recover that. There is also a cost on our side to engineer products to support various memory types and qualify them; a portion of that cost we may have to absorb. As supply increases over time, that will provide more optionality and competitive pressures that should help drive memory costs down and improve margins.
Thanks, Sachin. Quick follow-up: can you provide more color on the new Japanese OEM customer win you mentioned for digital clusters? How did this opportunity come about, what could the future hold, and how much of this opportunity is embedded in the out-year financial forecast?
This is an important win. Most customers do not like us to share details and the name until launch, so I will refrain from naming them. I will say this OEM is not part of the global top 12, but the volume is meaningful and can contribute to our revenues in Japan and North America. We were not a supplier to this OEM before; growing our reputation in Japan created this opportunity. The specific program is for a digital cluster with an initial award for three vehicles and more to follow. We see a significant future opportunity to expand with this customer in both regions.
Next question comes from the line of Dan Levy of Barclays. Dan, you have the floor.
I wanted to double click on some of the China dynamics. You underperformed in the quarter; revenue was down. You say you expect to get back to growth in the second half in China due to premium domestic content and HPC launches. Could you double click on the visibility of that flip to growth? What was happening in the second quarter that does not happen in the second half?
The domestic market in China is going through a structural change and overall demand is down, driven by recent changes in government policies and incentives. Most of the drop is impacting ICE vehicles and non-smart EVs. The demand for smart EVs—the premium tech segment—is doing better. This shift favors domestic OEMs that have smart EV portfolios and hurts many international OEMs. Our Q2 sales were up with domestic OEMs that have smart portfolios and were hurt by lower volumes with international OEMs. This dynamic changes in the second half with the launches we have discussed, including HPC launches. We see sequential growth from first half to second half, and this growth should continue into next year. By launching these higher-content products we will benefit from the premium segment strength.
To add on, by the end of the year we will be close to a 60% index with domestic OEMs in China. As we launch these high-profile products, it will rebalance our positioning towards more Chinese domestic OEMs.
Second question: as you ramp HPC with some Chinese customers, historically some Western suppliers have experienced rapid mix shifts or displacement from Chinese OEMs. What is the confidence that as HPC ramps you will retain visibility as a supplier? Can you also address how critical exports are from China for this business?
There are a few dimensions to think about. Chinese OEMs are evolving to work more collaboratively with a set of strategic suppliers for the long term, especially on products requiring ongoing software maintenance and regional diversification. AI technology and models are regulated and region-specific; AI IP developed for China is not generally suitable for Europe or the U.S. without significant changes and may face regulatory constraints. This requires OEMs to have capable suppliers that can support them in different regions with different AI software technologies. That changes the dynamic from a commodity box-supply model to an ongoing engagement requiring software and systems capability. As a result, the set of suppliers capable of delivering CDC and HPC with AI end-to-end is smaller: you need proven CDC capability and the ability to build AI on top of it. It is very hard to jump straight into HPC without CDC experience. Therefore, this relationship dynamic is different and supports longer-term partnership models. We must and will execute to deliver the value customers expect, but the business model is not the same as before and reduces the risk of rapid displacement based on simple hardware swaps. Exports will depend on each OEM's strategy and whether they intend to sell specific vehicles outside China; many Chinese OEMs that have export ambitions will require multi-region capabilities from suppliers, which benefits companies that can support those needs.
Your next question comes from Winnie Dong of Deutsche Bank.
Hi. Thanks for taking my questions. Just to clarify: the new HPC win announced this quarter—is that incremental to what was announced at the Investor Day? Also, can you talk about the customer pipeline for HPC in terms of interest from domestic customers and those with overseas ambitions? I have a follow-up. Thanks.
Yes. The HPC win we announced is incremental to what we had assumed for HPC sales at Investor Day. That particular win was not part of the Investor Day assumptions for 2027. We will discuss overall 2027 guidance later this year as we incorporate all inputs. Regarding the pipeline, we have been engaging actively with at least three OEMs and have many discussions about expanding our footprint within those OEMs as well as with others in China. We are working with OEMs that have export markets today or similar technologies. Discussions are very active and there is a lot of energy around solutions and next-generation AI capabilities as AI models evolve.
If we go back to the Investor Day deck and the revenue rampdown from GM and Ford, to what extent is that a base-case scenario or a worst-case scenario? Is there conservatism built in? And to what extent could opportunities in supplying other components such as displays serve as offsets to those declines?
We took a very thorough approach in our Investor Day modeling and did not include anything that we did not have a clear line of sight on. In that sense, the view is conservative and transparent. That does not mean we are not seeing opportunities with Ford and GM; we continue to have active discussions with them. A lot of the near-term opportunities this year are centered around displays, and we are starting to engage with them on electronics as they think about the next several years of cockpit electronics, CDCs and HPCs. We have a unique vantage point from our experience in China to bring value to them on technology choices and implementation strategy. Timing for decisions in Europe and the U.S. is often slower than in China and India, so we may see decisions materialize next year rather than this year. The baseline that we presented should be considered prudent, and we will pursue opportunities aggressively and update expectations as we know more.
Okay. Thank you, Sachin. Thank you, Jerome. This concludes our earnings call for the second quarter of 26. Thank you for participating in today's call and your ongoing interest in Visteon. This concludes Visteon's second quarter 26 results earnings call. You may now disconnect. Thank you, Sachin. Thank you, Jerome. This concludes our earnings call.