No Surprises In NXP Semiconductors's (NASDAQ:NXPI) Q4 Sales Numbers But Quarterly Guidance Underwhelms

Jabin Bastian /
2024/02/05 4:20 pm EST

Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 3.3% year on year to $3.42 billion. On the other hand, next quarter's revenue guidance of $3.13 billion was less impressive, coming in 1.2% below analysts' estimates. It made a non-GAAP profit of $3.71 per share, down from its profit of $3.73 per share in the same quarter last year.

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NXP Semiconductors (NXPI) Q4 FY2023 Highlights:

  • Revenue: $3.42 billion vs analyst estimates of $3.40 billion (small beat)
  • EPS (non-GAAP): $3.71 vs analyst estimates of $3.64 (1.8% beat)
  • Revenue Guidance for Q1 2024 is $3.13 billion at the midpoint, below analyst estimates of $3.16 billion
  • Free Cash Flow of $962 million, up 22.1% from the previous quarter
  • Inventory Days Outstanding: 131, down from 133 in the previous quarter
  • Gross Margin (GAAP): 56.6%, in line with the same quarter last year
  • Market Capitalization: $55.42 billion

“NXP delivered full-year 2023 revenue of $13.28 billion, an increase of 1 percent year-on-year. In the fourth quarter, revenue was $3.42 billion, an increase of 3 percent year-on-year, above the mid-point of our guidance range. In review, NXP delivered solid results throughout 2023, reflecting strong execution, consistent gross margin, and healthy free cash flow generation despite a challenging semiconductor market environment. We are navigating a soft landing by managing what is in our control, especially limiting over shipment of products to customers,” 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 16.5% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $3.31 billion in the same quarter last year to $3.42 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 sluggish quarter for the company as its revenue dropped 3.3% year on year, in line with analysts' estimates. NXP Semiconductors's growth, however, flipped from negative to positive this quarter. This encouraging sign will likely be welcomed by shareholders.

NXP Semiconductors returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 0.1% year-on-year growth next quarter, and analysts seem to agree, forecasting 2.5% growth over the next 12 months.

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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.

NXP Semiconductors Inventory Days Outstanding

This quarter, NXP Semiconductors's DIO came in at 131, which is 29 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 Q4 Results

It was good to see NXP Semiconductors beat analysts' revenue and EPS expectations this quarter. That stood out as a positive in these results. On the other hand, its revenue guidance for next quarter missed analysts' expectations, although not by a small margin. Overall, the results could have been better, but there is likely relief from the market that results weren't worse given some of the poor prints reported by other semiconductor companies this earnings season. The stock is up 2.9% after reporting and currently trades at $227.52 per share.

NXP Semiconductors may not have had the best quarter, but does that create an opportunity to invest 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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