No Surprises In NXP Semiconductors's (NASDAQ:NXPI) Q3 Sales Numbers But Quarterly Guidance Underwhelms

Petr Huřťák /
2022/10/31 4:07 pm EDT

Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 20.4% year on year to $3.44 billion. However, guidance for the next quarter was less impressive, coming in at $3.3 billion at the midpoint, being 3.35% below analyst estimates. NXP Semiconductors made a GAAP profit of $738 million, improving on its profit of $526 million, in the same quarter last year.

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NXP Semiconductors (NXPI) Q3 FY2022 Highlights:

  • Revenue: $3.44 billion vs analyst estimates of $3.42 billion (small beat)
  • EPS: $2.79 vs analyst estimates of $2.75 (1.4% beat)
  • Revenue guidance for Q4 2022 is $3.3 billion at the midpoint, below analyst estimates of $3.41 billion
  • Free cash flow of $863 million, up 56.6% from previous quarter
  • Inventory Days Outstanding: 97, up from 93 previous quarter
  • Gross Margin (GAAP): 57%, up from 55.3% same quarter last year

“NXP delivered quarterly revenue of $3.45 billion, an increase of 20 percent year-on-year and above the mid-point of our guidance range. Overall in the third quarter, we performed very well; however, we were impacted by the weakening macro-environment in our consumer-exposed IoT business. At the same time, demand in both the automotive and industrial markets continues to be resilient, driven by secular and company-specific drivers, along with incrementally improved supply. Looking ahead, while we continue to be supply constrained, we are cautious in the intermediate term, due to the uncertainties in the macro 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.

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 14.2% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $2.86 billion to $3.44 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 decent quarter for NXP Semiconductors as revenues grew 20.4%, topping analyst estimates by 0.58%. This marks 9 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, NXP Semiconductors believes the growth is set to continue, and is guiding for revenue to grow 8.58% YoY next quarter, and Wall St analysts are estimating growth 4.62% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 97, 2 days above the five year average, suggesting that inventory has grown to a level slightly above the long term average.

Key Takeaways from NXP Semiconductors's Q3 Results

With a market capitalization of $39.8 billion, more than $3.75 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see NXP Semiconductors improve their operating margin this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the inventory levels increased a little. Overall, this quarter's results were not the best we've seen from NXP Semiconductors. The company is down 1.52% on the results and currently trades at $143.85 per share.

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