Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 5.4% year on year to $3.25 billion. On the other hand, next quarter’s revenue guidance of $3.1 billion was less impressive, coming in 7.7% below analysts’ estimates. Its non-GAAP profit of $3.45 per share was also in line with analysts’ consensus estimates.
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NXP Semiconductors (NXPI) Q3 CY2024 Highlights:
- Revenue: $3.25 billion vs analyst estimates of $3.25 billion (in line)
- Adjusted EPS: $3.45 vs analyst expectations of $3.43 (in line)
- EBITDA: $1.33 million vs analyst estimates of $1.33 billion (99.9% miss)
- Revenue Guidance for Q4 CY2024 is $3.1 billion at the midpoint, below analyst estimates of $3.36 billion
- Adjusted EPS guidance for Q4 CY2024 is $3.13 at the midpoint, below analyst estimates of $3.64
- Gross Margin (GAAP): 57.4%, in line with the same quarter last year
- Inventory Days Outstanding: 147, in line with the previous quarter
- Operating Margin: 30.5%, up from 28.9% in the same quarter last year
- EBITDA Margin: 0%, down from 40.5% in the same quarter last year
- Free Cash Flow Margin: 18.2%, down from 22.9% in the same quarter last year
- Market Capitalization: $60.78 billion
EINDHOVEN, The Netherlands, Nov. 04, 2024 (GLOBE NEWSWIRE) -- NXP Semiconductors N.V. (NASDAQ: NXPI) today reported financial results for the third quarter, which ended September 29, 2024. “NXP delivered quarterly revenue of $3.25 billion, in-line with our overall guidance. While we experienced some strength against our expectations in the Communication Infrastructure, Mobile and Automotive end markets, we were confronted with increasing macro related weakness in the Industrial & IoT market. Our guidance for the fourth quarter reflects broader macro weakness especially in Europe and the Americas. We focus on managing what is in our control enabling NXP to drive resilient profitability and earnings in an uncertain demand environment,” said Kurt Sievers, NXP President and Chief Executive Officer.
Company Overview
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
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Luckily, NXP Semiconductors’s sales grew at a decent 7.6% compounded annual growth rate over the last five years. This is a useful starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but recency is necessary for semiconductors because of Moore's Law, which suggests the pace of technological innovation is so high that yesterday's hit new product could be obsolete today. NXP Semiconductors’s recent history shows its demand slowed as its revenue was flat over the last two years. 
This quarter, NXP Semiconductors reported a rather uninspiring 5.4% year-on-year revenue decline to $3.25 billion of revenue, in line with Wall Street’s estimates. Management is currently guiding for a 9.4% year-on-year decline next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months, an improvement versus the last two years. Although this projection indicates the market believes its newer products and services will spur better performance, it is still below average for the sector.
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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.
This quarter, NXP Semiconductors’s DIO came in at 147, which is 38 days above its five-year average, suggesting that the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from NXP Semiconductors’s Q3 Results
We struggled to find many strong positives in these results. Its revenue guidance for next quarter missed analysts’ expectations and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 5.1% to $224.80 immediately following the results.
NXP Semiconductors’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.