Aptiv PLC (APTV) Earnings Call Transcript & Summary

All right. Good morning, everybody, and thank you so much for joining us for this next session as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner, and I'm the lead U.S. autos and automotive technology analyst here at Deutsche Bank. We're incredibly pleased to be joined this morning by Joe Massaro, who is the CFO and SVP of Business Operations at Aptiv. As you all know, Aptiv is a leading global supplier make solution that make the vehicle safer, greener, more connected with a focus on signal and power distribution, connected vehicle ADAS as well as user experience. The company is also working alongside Hyundai through its motional JV to bring autonomous driving solutions to market in the coming years, and that's obviously an exciting area that we will want to focus on as well. So very, very pleased to have you, Joe, thank you so much for joining us.

Thanks for hosting.

So maybe just to set the stage here, I'd love to ask you some questions around the environment you're facing. Can you provide an update on the impact from the China, COVID shutdowns, the indirect impact from the Ukraine war in Europe on production in the second quarter, and how you see this play out for the rest of the year?

Sure. So I think that's a really good place to start, just given everything that's going on. So from what we've seen so far in the second quarter, and obviously, there's still a meaningful part of June to go. I think it's a little bit of consistent with really the past 1.5 years, 2 years. Very challenging near-term events impacting our customers, impacting our ability to produce. But when you take a step back and look at some of the things that are happening from a mid- or long-term perspective, a lot of positives, and I can go into some of that color. China was a very difficult quarter. Our team did a very good job of getting operations back up and running. We're effectively back up and running in China, started in the beginning of June. We were able to open up a couple of facilities early. We participated in the closed loop process within China for a couple of our larger plants where the Chinese government allowed you to test employees, bring them in, house them within the campus, where the plant was and you could run operations. So I think we've got a leg up on getting back up and running, but a significant impact in the quarter. So you have to, and I've had to use this line a couple of times in the past year, but you need 100% of the parts to make the cars, right? So our customers, even though we're up and running, they're still somewhat impacted by their supply chain. So I'd say China was more impacted than we originally thought. But again, still time in June. Our customer schedules are remain reflective of the Chinese OEs looking to make up for lost production in the back half of the year, but that's obviously going to be tight with -- particularly if there's any other COVID disruptions and maybe some risk there. We also saw some increase, what I'll call, COVID and disruption costs, obviously, in the quarter from just having China shut down and trying to operate in that environment. One other area that's become challenging in the second quarter. We are starting to see some supply chain tightness on semiconductors impacting production. We are actually building a backlog or a back order book at this point in the second quarter, which is something we historically have not had in any meaningful way. That's really -- it's different than maybe it was last year where you don't see semiconductor shutting down production, but we're certainly I think, constrained on how much ramp we can have. And that's something we're obviously mindful of if the back half of the year. Again, better than it was, not shutting down production. But as we're looking at some of the ramp in Q2 that we were anticipating, some of the ramp in Q3, Q4, I think ourselves, our customers are starting to think through just what could the impact of chip availability be. Pricing. We're on track to have another solid pricing quarter. Engagement with customers has been overall very good. We've got customers that are, I think very constructive, very collaborative on the price discussion as we move through material inflation. We do have a few customers that maybe are a little bit more resistant to that. And I think those conversations are starting to be dialed up a little bit more in terms of impact on needing to either get that price or a willingness to deliver those parts. And we're not there yet with any customers yet, but I do think it's possible in the back half of the year. We start to have those discussions as particularly as you see the semiconductor guys rolling through some incremental price increases here in the back half of the year, which is their indication. So very challenging near term. A lot of things to work for. The teams are very busy. On the mid- to long term, Q2 is going to be a fantastic bookings quarter. We're going to finish year-to-date at about $17 billion in bookings. Last year, on a full year basis, we had $24 billion in bookings. So Q2 is very significant. That implies about $11 billion bookings number for Q2 with really large programs in the key technology areas. So we booked almost a $3 billion Level 2+ active safety system program with a major OE. We booked round numbers about $1.5 billion of SVA central compute in the quarter. And the high voltage business continues to do very well. Even with China being impacted the way it was, we're expecting high voltage product line growth to be about 30% year-over-year in the quarter. So again, mid- and long-term, as you think about where the business is going and what we're doing. As Kevin mentioned on the last earnings call, quite honestly couldn't be stronger, but a lot of near-term disruptions. And we'll obviously go through the scheduling process with our customers here on the balance of June and into July and update the guide for the full year. I think if we had to sort of call it now, we'd say we're probably in the bottom half of our guidance range, just as you roll through the impact of China and the potential impact of this backlog in semiconductors, which is something we're watching pretty carefully at this point.

I appreciate this overview. Extremely helpful. Let me just follow up on one of these points before I move on to my other questions. The one you made about the semiconductor shortages because I think there's sort of like this sort of like high-level impression that things are sort of globally getting better sequentially sort of track this IHS number and the level of disruption. What I guess what exactly are you seeing? Are you saying it was getting better and now is getting worse again? Or like it's just no improvement?

No. It's gotten better. I mean, last year, if you go back to Q3 and Q4, we had weeks of down production due to lack of availability of chips. It's gotten better. Supply is more constant. And I think the way I would describe it is supply has gotten better and is at a point where we are as an industry, this just is an inactive thing, obviously, we're able to keep customers connected, which means the production lines can run. What we're looking at now is particularly with -- and we're seeing this both with our direct buy of chips, but also seeing some extent, signal and power being impacted on platforms. So it's not us. We see it happening to other suppliers. Just as you start to ramp production, which was always the plan in the back half of the year, I think there's a sort of growing question of will the supply increase at the same rate as the vehicle production wants to go up. We're still in a very strong demand environment. Our customers, and I know they say this at meetings like this, they'd build as many cars as they could. We see that. To the extent there are parts, they extend there's availability, they will build the cars. So the demand is very strong. I just think there's -- we're seeing some early signs of some friction between ability to ramp and availability of primarily semiconductors. And regionally, if you look at it, North America continues to be very strong. China, we talked about. Europe is probably the softest from a demand perspective at this point. And we're seeing, again, some schedule movements in Europe, hard to tell if they're sort of semiconductor related or economic related at this point, but that's something we'll be sort of firming up here as we go over the next few weeks.

And then the Ukraine situation, have you successfully relocated all your wire harness production and are the industry-wide production disruptions getting resolved?

Yes, we were -- I think as you may know, we were an early mover out of the Ukraine. We had plants on the shelf back in January, just in case it happened, we were somewhat fortunate in that Ukraine was only about -- this is on the wire harness business, about 10% of our manufacturing footprint. So we had capacity in other locations that we could move, move into. We have been able to duplicate those production lines for all the programs at customer cost in other locations. And our largest program in the Ukraine, we actually moved back. It's a large German-made SUV. We actually moved production. Production started in another country, the same day of the invasion. So we called that right. We are -- there is one plant in the Western Ukraine that is still available to operate, and we have been running some shifts there as conditions allow, but that production is also available to us in another location.

Okay. Great to hear. So I guess then talking about the outlook for the company, I guess, this year, and certainly you provided a helpful update signaling towards potentially the lower end. So some of my pre-written question may be pointing to the middle of it, but same spirit. So the guidance implies still a very decent margin improvement in the back half, I guess, versus the first half and a very large improvement in EBIT. What are the primary drivers there? Like if you were thinking first half to second half walk, what should we be looking for?

And the drivers will remain unchanged. It's obviously just order of magnitude. And there's a couple of things happening on a first half, second half. One, a lot of the inflation really started in September, October last year, particularly on the semiconductors. So the first half of the year was impacted a little bit more than the second half when you just think about when across at least the original price increases rolled through. So we were talking about sort of a $205 million net inflation number, about $115 million or $130 million of that should sit in the first -- hit in the first half and then the remainder in the back half. So you've got some improvement there. We are indexed on our largest commodity copper. We're indexed with our customers. We update customer pricing for our largest customer monthly for the majority of our customers quarterly. For the rest, it's every 6 months. So July 1 is that date where we're sort of at market across all of our customer contracts. So we're expecting that dynamic of sort of the timing impact of copper buys to be less impactful in the back half of the year than the first half, which helps. Then there's a couple of other things. There is some self-help. Obviously, we're not sitting here waiting for the world just to get better. We have taken some cost actions in the business, we should start to increment, call it about $15 million a quarter here beginning in late Q2, Q3. So that's obviously helping versus the first half. Then the other thing I'd keep in mind, our back half is from a profitability perspective, particularly the fourth quarter is historically our strongest. We tend to recoup a lot of the industry has what they call NRE or this net engineering credits, we tend to recoup those payments from the customers in the back half of the year, particularly Q4 in the AS & UX business. So if you looked at pre-COVID, pre-supply chain disruptions, we tend to print stronger in Q4. So you've got sort of some of that natural flow happening as well.

Okay. And I guess on the cost side, I guess, you had called for net cost headwind of $200 million or so from commodities and other inputs sort of like for the year and then some large additional headwinds from, I guess, COVID disruption and cost and things like that. How is this part? How does the cost playing out versus the initial expectation and playing out over the rest of the year?

Yes, those are 2 big cost buckets, they're important to differentiate. So one that we've talked about for a while now is the COVID and supply chain disruption costs. We had estimated that to be a couple hundred, $250 million or so for the year. We were on a good downward trajectory on those costs. Those were -- we were picking up about $100 million of savings against those costs in '22 versus 2021. China shutdowns are going to take that number up. We're still quantifying the impact. Obviously, we got Q2. But some order of magnitude of, call it, perhaps $50 million increase from the China shutdowns, again, preliminary numbers still working through that. But that order of magnitude. The inflation continues to be very challenging. I think you've heard a lot of folks say that. Like I said, we have customers that -- all of the customer discussions have started, obviously, around passing through those price increases, particularly on semiconductors. Some of them have been more constructive in others. As I mentioned, we're sort of sharpening the pencil and the ones that have been less constructive. I do think we're making good progress on price. The price relief at the moment from customers is still -- and we anticipated this, we've talked about it, coming in a couple of different flavors, right? We have some customers who are looking at it, looking at the programs and agreeing to what I'll call sort of piece price run rate increases. So increase the price for the life of the program for the amount of material inflation we've seen. And that's -- there are a number of our larger customers who are agreeing to that. We have some programs where the customers want to really understand what's driving the inflation. And I think this is a fair request from customers, wanting to make sure we've done everything we can as the supplier to offset those costs just before coming to them with our with our list of cost increases, which if I was in the chair, I'd do the same thing, I think that's a reasonable position. So what we have, the number of reengineering programs taking place where we're looking to design out, the semiconductors, bring in an alternative, maybe reduce the number of chips on a board as the way of mitigating costs. That obviously takes some time. That's depending on the nature of the product or the program, if that's a safety critical program, that could be a 12-, 15-, 18-month exercise. So what we're seeing in the cases of that is a lot of customers forgoing their annual price downs as a means of helping provide that offset. And as we've said really since the beginning of the year, we're less concerned about what line item the economic recovery occurs on, more important that we get the economic recovery. And we continue to see progress. Like I said, some of the discussions are not moving as fast as we'd like and we'll obviously need to sharpen the pencil there a bit. One of the things we have seen, which I think is very constructive in one of the larger bookings we've had in the beginning of the year, we are seeing customers' willingness to swap out semiconductor providers that have been maybe on the heavier side of the price increases. And that is a very good message, I think, to the market. We did see a supplier who had been on predecessor programs for over 10 years, gets swapped out for a new semiconductor provider. And we were obviously working with both semiconductor providers on a price that would work for our customers, for ourselves and obviously for them. But this was a good program to sort of have out there in the market as one that got -- someone that got swapped out because I do think you need some of that competitive tension. And automotive for all the right reasons over the past 10, 15 years has tended to concentrate a lot of the semiconductor buy with particular suppliers to get the cost down, right, to get aligned from a technology road map perspective. And that's made it a little harder or made it much harder actually in the short term to sort of navigate between semiconductor guys because you have somebody who's been providing that technology for the past 5, 6, 7, 8 years, there's just not a lot of alternatives in the market. So to the extent another semiconductor provider brings an alternative to the market, I think -- we think it's important that the supply base as well as the OEs are open to changing out that technology.

Okay. That's great color. And then maybe just finally on the topic of margins then. So I think you had the slide in the last earnings call where you're essentially saying, "Hey, here's was, how old framework, here's what happened since then." So I guess, what is the time line to get back to kind of the a 14% EBIT margin target. And more importantly, what do you need to see or do to get through there over that?

Yes. Listen, I think the -- it's -- the timeline is when it started, right? We're obviously seeing incremental margin improvements. Even in the lower end of that guidance range, you'll know -- you'll see very positive incrementals. We've historically said our incrementals should run between about 18% to 22% on the EBIT line with increased volume. Even at the lower end of the range, where the guidance range were within that historical or bumping right up against that historical parameter. At the midpoint, we're actually at about 24%. So that includes absorbing all of this inflation and working through these COVID supply chain and disruption costs, right? So there is -- the muscles in the business that we've had for years that have improved operation, improved efficiency been very hawkish on just SG&A growth and how we're investing in the business. All of those are still in place, and we're working very hard on that. Like I said, we've introduced some self-help through some cost actions here in the back half of the year. So I think it's starting. I think the timing question, I would love to be able to answer it. Obviously, there's a lot going on in the world that makes that very difficult. But I can tell you the things we'll need to see for that margin to get better over the next couple of years. One, that original forecast was based on 98 million units of production. Obviously, we're much lower than that at 83 million. We have a view that certainly over the next couple of years, and there could be a period where depending on what happens from sort of a macroeconomic impact that maybe slows down this growth. But we do think the world gets back to above 90 million units. And we don't need 98 million. As we go incrementally higher, our business is set up to flow that incremental margin, and it does flow. It continues to flow well if you look at how the product lines have done. COVID and supply chain disruption costs, again, that's a big number in the P&L, that's directly related to shutdowns, things like when you have to close your plant for 2 weeks because of a COVID lockdown and you know you're going to open up in week 3 or week 4, you have to pay the labor. You have to keep the plant basically functional, right? You can't take those costs out because customers expect us to be back up and running in a relatively short period of time. Those costs, once we get back to normalized operations, those costs will get absorbed normally, and they won't be sort of in that distinct cost bucket. So as supply chain and COVID gets better over the coming years, those costs will come out. There's nothing structural there. The bigger long-term challenge, and we've talked about this taking a couple of years really is that inflation number. And some of that's tied up in the reengineering work. Some of that's tied up in continuing to push prices into the customer base. And maybe at some point, you see some relief from the semiconductor folks, but we're not assuming that. We're sort of on the first and second paths of either needing to figure out how to reengineer it out or push it to customers. But those are really the key buckets of what needs to happen. I think the -- structurally, the business is -- and Kevin said this on our CEO said this on our earnings call -- on our last earnings call, we actually think structurally, the business is set up better to flow now than it was in 2019, right? If you look at versus 2019, we now have almost a $2 billion active safety business. So we're starting to see the volume benefit. It's a very strong product line that's going to have strong double-digit north of 20% growth for the next couple of years. We got a high-voltage product line that's landed last year, a little less than $1 billion in revenue, that's accretive to the SPS segment. So very strong margins there. That's the business I mentioned, grew 35% in the second quarter or we're expecting it to grow 35% in the second quarter. So again, that's going to be a big contributor. So there's a lot of structural things that are going well in the business. We're dealing with much lower vehicle production at the moment, which we think is temporary as well as those cost buckets we talked about.

Great. I appreciate the deeper dive into all of these dynamics. So now maybe switching gears a little bit to some of your technology and opportunity. Let's start maybe with SVA or smart vehicle architecture. What kind of content opportunity do you see on these SVA system at scale compared to what's on the current electrical architecture today? But also just as importantly, what does the timeline look like to sort of improve content?

No, listen, content, we'll look a lot like the active safety business, the multi-domain controller. So you're in that north of 1,000 plus per vehicle. It obviously depends on how much of the system we get. But these large SVA central compute controllers are very much akin to the large domain controllers. And it actually, from a price point perspective, should be a little higher. I mentioned this quarter, we booked round numbers, $1.5 billion central compute program, which is an SVA technology with a large German OE. Start of production on that program is sort of late 2023, 2024. So you'll start to see those revenues come in. I think...

That's the first one?

No, there's been -- that's the third one. We've actually had a couple in China, not to that size, but in SVA-type technology, that's actually the, and that's the third one and we've talked about the other 2 previously, those happened last year. I think one of the important things, I mean we don't necessarily approach it from this angle often. But I think one of the important things, whether you're talking about SVA or talking about vehicle electrification with Aptiv, not only is the incremental content opportunity, but there's lack of decremental content, right? Where we've positioned the portfolio very well so that our net exposure to -- or gross exposure to electrification -- moving to electrification is about $150 of content on the engine harness and that's more than made up for with the high-voltage electrical system, right? So as we transition to EV, as they transition, SVA is another good example, right? We don't make the small controllers, the individual chassis or the individual brake controllers, those small compute platforms that are ultimately going to be consolidated into the larger domain controllers, right? So for us, it's really incremental content opportunity. There's no decrement that we're sort of fighting as a headwind over time. And that to us and particularly when we talk about the growth over market, which certainly can be impacted by things like China shutting down for 4 or 5 weeks in a given quarter, right? But our long-term view of our ability to grow over vehicle production 8% to 10%, and is really backstopped by not only the key technologies we're in, but the lack of decremental content we've been able to put into the -- or be sure is not in the portfolio.

Right. So you previewed earlier in the, I guess, the first question, a fairly large win, Level 2+ ADAS that you'll be reporting for during Q2. Are you still seeing outsized win rates in these Level 2 level 3 type of ADAS assets? I think at some point, you were potentially talking about the 70%, 80% win rate and having almost like a lack of credible competitors. Does that continue? Is that a little bit more of a level playing field with more competitors?

No, we haven't seen -- I mean, our main competitor for these complex Level 2+ systems remains Bosch. Really, over the past 3 or 4 years, we've seen that moat expand to where really Bosch is our main competitor in that space. That continues to be the case. Obviously seeing a lot of activity at the Tier 2 active safety space. So the SoC providers and particularly SoC providers with vision, we're seeing a lot of -- a lot of dynamics there, particularly with Qualcomm's acquisition of Arriver, the Vision software from the vision capabilities from Veoneer. So seen a lot of competition, which is actually, I think, ultimately good for ourselves and good for the customers. To the extent you've got a bunch of these SoC guys sort of buying for a place within our system, that is an opportunity, obviously, from a -- to maintain sort of competitiveness from a cost perspective and be able to pick sort of the best functionality depending on who's there. But as our role as a developer of those systems and an integrator of those systems really haven't seen any change in the competitive environment at this point.

That's helpful. Let me ask you, I guess, 2 of the concerns that we hear sometimes from investors. One of them is a threat of OEM in-sourcing in the development of electrical distribution, maybe a little bit like Tesla has been doing. Is that something that you're witnessing in terms of trends beyond Tesla?

We don't even see it at Tesla, to be honest with you. We've got a strong position with a number of global EV manufacturers, including them. We're actually there providing the low-voltage systems. No, listen, I think when you look at potential OE in-sourcing, there's certainly a couple of areas where they are trying to do more and should do more. Software is a good example of that. They -- an OE that strengthens their software capabilities is better for the overall ecosystem. And that's a good analogy to Tesla, right? If the extent you can get more technology in the vehicle, there's a lot of opportunity. But now electrical architecture -- if you really look at our Signal and Power Solutions business, we have content on close to 1 out of every 3 vehicles manufactured globally. That's where the electrical, the high-voltage electrical distribution system. And for those -- just to be clear, when you build an EV, you still have a low-voltage electrical system. You still have your 12-volt system in there. And the high-voltage system is actually added content that goes on top of it. And it's a really robust product line. So no, we've seen no in-sourcing. And I don't -- if you look ourselves in Yazaki are really strong in the electrical distribution system. We're the only ones that can sort of bring the complete system. We have the electrical distribution system, sort of a wire harness. Back in the day, we call it a wire harness. It's far more complex than that is now. We have an interconnect business in automotive, depending on markets, we're #1 or 2 to TE in terms of size of the interconnect business. And then HellermannTyton, which is the cable management and the channeling business, which is a very important part, particularly of a high-voltage electrical system really is top -- #1 in the world in terms of those types of systems going into vehicles. So a very strong position there. And I don't think it would be worth an OE's time to figure out how to go into my view from a capital perspective, the time and engineering to figure out how to compete with Aptiv [indiscernible] connectors, right? That's obviously not probably the best use of their time or energy. So on electrical architecture, no in-sourcing, where we are seeing customers and some are further ahead than others make a very concerted effort to invest in software capabilities. And to us, that's actually pretty important, right? We think it's important that we understand the complete software architecture that goes into a vehicle. If we're providing the active safety software, we have visibility into our software, but we don't necessarily have visibility into all the software going into the vehicle. As these systems consolidate, as you move to SVA, more and more is going to go into a single software stack, which we think we're very well positioned to provide with the addition of Wind River. We're also seeing OE spend time on certain software applications that they think are important to the brand. right? We have a one good example. We have an advanced development program with a performance brand for a Level 3 system. We're providing the full system. They're developing the highway pilot. The algorithms that control how the car drives on-highway on an automated basis. They think that's important to the brand. They want their car to drive. They think they're the ones best capable of having their -- determining how their car drives on highway pilot. We're doing the rest of the system. So it could -- and there's other systems, the other customers where we do the highway pilot ourselves, right? So could you technically call that out and say, "No, your customer is competing with you there, that's true. But they tend to be very fact and circumstance based. And that software, what they develop will come into our system. So we're still obviously the developer, the complete system and the integrator of that system.

Got it. Maybe final one for me and then we'll see if there are any questions from the room. But Mobileye, that's the other concern that we hear sometimes from investors an incredibly strong partner of yours on the vision side, inside your system, looking to go public in the early near term. Are you sensing that change in strategy there where Mobileye would love to move from Tier 2 towards more being more of a Tier 1? And does that change your relationship or does that create any sort of threat?

No, [indiscernible], listen, they are a very strong technology company, a very strong partner. We've been partnered with them for over 15 years. On our active safety business, they're obviously the Tier 2, right? I mentioned earlier, I do think within that SoC space, and I do think Mobileye will certainly be there and be very competitive. Within that SoC space, particularly around active safety systems, we are seeing greater levels of competition among some of the big SoC providers. And I think Qualcomm has obviously talked a lot. Mobileye has been talking a lot about what they want to do there. To take that into a Tier 1 environment where they're building hundreds of thousands or millions of these systems and delivering them at the time. I haven't seen any of the Tier 2 sort of commit capital, which would be a lot, commit resources to physically moving up into the Tier 1. And -- but again, I do see a lot of competition in that Tier 2 level. And our relationship with Mobileye and the active safety business remains very strong. And you referenced sort of those 7 out of 11 wins we had on the large active safety systems leading into 2020. Those were obviously -- we were using the Mobileye vision algorithms for those. I think Mobileye actually won 8 of those 11 with one other supplier and then the other 3 were Bosch. So that's -- that continues to be how we see that market shaping out. But I do think the opportunity for sort of at least immediate sort of competitive interactions probably more on the SoC side there.

Right. Good color. Any questions in the room? Yes.

Just maybe a more concrete example of what Emmanuel was getting at in terms of OEMs trying to do a little more themselves. We had Ford in here, and Jim Farley has talked about this as well that not only with their next-gen vehicles, wanting to control the software, but taking it all the way down to the ECU level, where they want the software there and consolidating that into domain controllers where they own them were there as well, which kind of sounds like what you're doing with SVA. So I'm wondering if I'm sort of interpreting that right and if other OEMs are targeting that same type of capability? Does that narrow the playing field for you with SVA?

And I certainly wouldn't want to disagree and I wasn't in the room when Jim made his comments, and I wouldn't obviously want to discrete them. I think what we're seeing, and there are some good data points out there. GM's recent announcement with Red Hat that they're going to work on a software stack for their controllers. The Wind River Hyundai announcement that came out a couple of weeks ago, some of the things we're doing with a couple of our large German customers. I have no doubt when those systems come to market, they will be the OE-branded software stack for that particular vehicle or for that particular platform, right? But if you look at some of the announcements that come out they'll be using real-time operating system, middleware from the supply base. And what we have not seen is NOE, any of our customers, come in and say, we don't need a QNX or we don't need a VX works. We don't need the basic operating software for vehicle. We're going to go develop our own. That hasn't happened yet. They tend to be taking solutions that are available to the market and bringing them in. And now we've always talked about SVA. And I think a lot of times when people think about our SVA solution, they're thinking about the hardware side of things, right, where you bring the hardware down from 120 compute platforms that are in a vehicle to these large, whether it's 2 or 3, depending on the system, big redundant boxes. Well, implicit in that was there always was going to be a software consolidation as well, right? If you're going to have one box, you need one really robust edge software program that can -- software solution that can run that box. And that's really where we get to with Wind River. And I think as you look out and think about the middleware layer, the operating system, the DevOps environment, the cloud enablement. If you look out to 2030, we don't see a scenario where there are 20 or 25 of those individual systems, where the OEs have gone out and done all of that themselves, right? What we do see our 4 or 5 core systems, including Wind River, including potentially Red Hat with GM, there's a couple of others out there. Maybe China goes off and does something different just given the current geopolitical concerns about sharing software between the East and West. But those systems weren't bespoke from today, right? They're leveraging off of existing technologies, existing capabilities. And that, to us, makes a lot more sense from an economic perspective, particularly when you think of something like a Wind River, their operating system, their middleware, their DevOps environment. That's currently deployed on 2 billion devices throughout the world. Now the only about 10% of their business is automotive. But when you think about aircraft, when you think about G5 cell phone, antenna installations, when you think about industrial automation, that the robustness of that operating system, that middleware is very important to compute at the edge, compute on the vehicle. And we really think that's where the opportunity is. I have no doubt once those systems are complete, that the OEs will refer to them as their system. And they will be accurate. That is their system. But I think some of the building walks in there are going to come from others because they exist, they're much more ready to go than starting something from scratch.

That's great. I think we're just a quick one.

You just talked about a potential sort of -- questions starting to happen on the ramp in production in the back half of the year. Can you just talk about what changed between the assumptions that you had previously and the assumptions that are increasing the amount of awareness you have today. And let's say, it's something related to China. Just the amount of time you need to sort of resolve those issues if they're transient on front and back-end processing or if they're more structural. Any color on that would be great.

Yes. They're not structural to our business. I think these are going to be more industry questions than Aptiv specific, right? And I think you're going to find -- and this has happened a couple of times in 2020 and 2021 now where the challenge really is going to be how much time is left in the year to hit the full schedules. And how much China gets pushed out into the back half, and to what extent -- and as I mentioned, we're seeing this now in Europe where semi availability is starting to push production out of Q2 into the back half of the year. Not -- we're not anywhere near shutting down at least from what we're seeing as an industry as to where we were last year, particularly that sort of August to November timeframe. But we've got a ramp. Everybody is going to ramp in their schedules from a back half globally, right? And to the extent we take more volume out of the first half of the year, push it into the second half because of COVID lockdowns in China because of semiconductor availability, I do think we're going to have a question is just how much can we practically get done in the back half of the year? And what does that look like? Like I said, from our perspective, now with maybe a little -- with the exception of maybe a little bit of softening in Europe that could be part of the semiconductor. We still need to work through schedules, seeing no overall broad demand impacts. We're not seeing any customers really call off schedules for demand concerns. But I think as you're talking about calendar 2022, the one thing we're going to be mindful of as we go through the forecasting process is just how much of it gets condensed into the back half of the year.

So thank you so much for all the time, for the insights. And please join me in thanking the Aptiv team for the time today.

Thanks, man. Appreciate it.

Thanks, everyone.