NXP Semiconductors (NASDAQ:NXPI) Exceeds Q1 Expectations, Next Quarter Sales Guidance Is Optimistic

Jabin Bastian /
2022/05/02 4:24 pm EDT

Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported Q1 FY2022 results topping analyst expectations, with revenue up 22.1% year on year to $3.13 billion. Guidance for next quarter's revenue was $3.27 billion at the midpoint, 3.88% above the average of analyst estimates. NXP Semiconductors made a GAAP profit of $666 million, improving on its profit of $364 million, in the same quarter last year.

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NXP Semiconductors (NXPI) Q1 FY2022 Highlights:

  • Revenue: $3.13 billion vs analyst estimates of $3.1 billion (1.04% beat)
  • EPS (GAAP): $2.48
  • Revenue guidance for Q2 2022 is $3.27 billion at the midpoint, above analyst estimates of $3.15 billion
  • Free cash flow of $577 million, up 11.1% from previous quarter
  • Inventory Days Outstanding: 88, up from 81 previous quarter
  • Gross Margin (GAAP): 56.6%, up from 52.7% same quarter last year

“NXP delivered record quarterly revenue of $3.14 billion, an increase of 22 percent year-on-year and above the mid-point of our guidance range. The strong growth we have anticipated for 2022 is materializing. We continue to see robust customer demand, especially our company-specific accelerated growth drivers. Overall, demand continues to outstrip increased supply, and inventory across all end markets remains very lean,” 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 unremarkable, averaging 9.34% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $2.56 billion to $3.13 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 22.1%, topping analyst estimates by 1.04%. This marks 7 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 even accelerate, and is guiding for revenue to grow 26.1% YoY next quarter, and Wall St analysts are estimating growth 11% 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 88, 7 days below the five year average, showing that despite the recent increase there is no indication of an excessive inventory buildup at the moment.

Key Takeaways from NXP Semiconductors's Q1 Results

With a market capitalization of $44.8 billion, more than $2.68 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.

We enjoyed seeing NXP Semiconductors’s improve their operating margin materially this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was less good to see the inventory levels increase. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $176.5 per share.

Should you invest in NXP Semiconductors right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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