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NXP Semiconductors (NASDAQ:NXPI) Beats Q3 Sales Targets But Quarterly Guidance Underwhelms

StockStory - Mon Nov 6, 2023

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Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results in line with analysts' expectations in Q3 FY2023, with revenue flat year on year at $3.4 billion. However, the company expects next quarter's revenue to be around $3.4 billion, slightly below analysts' estimates. Turning to EPS, NXP Semiconductors made a GAAP profit of $3.01 per share, improving from its profit of $2.79 per share in the same quarter last year.

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NXP Semiconductors (NXPI) Q3 FY2023 Highlights:

  • Revenue: $3.4 billion vs analyst estimates of $3.4 billion (1% beat)
  • EPS (non-GAAP): $3.70 vs analyst estimates of $3.59 (2.9% beat)
  • Revenue Guidance for Q4 2023 is $3.4 billion at the midpoint, below analyst estimates of $3.4 billion
  • Free Cash Flow of $788 million, up 41.7% from the previous quarter
  • Inventory Days Outstanding: 133, down from 135 in the previous quarter
  • Gross Margin (GAAP): 57.2%, in line with the same quarter last year

“NXP delivered quarterly revenue of $3.43 billion, $34 million above the midpoint of guidance. Revenue trends in our Mobile, Industrial & IoT and Automotive end-markets all performed in-line or better than anticipated, while our Communication Infrastructure & Other end market was slightly below our expectations. The combination of our third quarter results, and the mid-point of our fourth quarter guidance indicates revenue for the full year 2023 will be flat versus 2022 in a challenging and cyclical market environment,” said Kurt Sievers, NXP President and Chief Executive Officer.

Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

NXP Semiconductors's revenue growth over the last three years has been mediocre, averaging 17% annually. But as you can see below, its revenue declined from $3.4 billion in the same quarter last year to $3.4 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

NXP Semiconductors Total Revenue

This was a slow quarter for the company as its revenue dropped 0.3% year on year, in line with analysts' estimates. This could mean that the current downcycle is deepening.

NXP Semiconductors looks like it's on the cusp of a rebound, as it's guiding to 2.7% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 4.8% growth over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

NXP Semiconductors Inventory Days Outstanding

This quarter, NXP Semiconductors's DIO came in at 133, which is 32 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from NXP Semiconductors's Q3 Results

With a market capitalization of $46.8 billion, a $4 billion cash balance, and positive free cash flow over the last 12 months, we're confident that NXP Semiconductors has the resources needed to pursue a high-growth business strategy.

It was good to see NXP Semiconductors beat analysts' revenue and EPS expectations this quarter, even if the beat wasn't huge. On the other hand, its revenue guidance for next quarter underwhelmed but guidance for adjusted operating profit and adjusted EPS were roughly in line. Overall, the results were generally fine, not amazing, not disastrous. The stock is flat after reporting and currently trades at $184.47 per share.

So should you invest in NXP Semiconductors right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.