Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported Q1 FY2023 results topping analyst expectations, with revenue flat year on year at $3.12 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $3.2 billion at the midpoint, 5.35% above what analysts were expecting. NXP Semiconductors made a GAAP profit of $623 million, down on its profit of $666 million, in the same quarter last year.
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NXP Semiconductors (NXPI) Q1 FY2023 Highlights:
- Revenue: $3.12 billion vs analyst estimates of $3 billion (3.95% beat)
- EPS: $2.35 vs analyst estimates of $2.25 (4.42% beat)
- Revenue guidance for Q2 2023 is $3.2 billion at the midpoint, above analyst estimates of $3.04 billion
- Free cash flow of $381 million, down 54.8% from previous quarter
- Inventory Days Outstanding: 133, up from 114 previous quarter
- Gross Margin (GAAP): 56.7%, in line with same quarter last year
“NXP delivered quarterly revenue of $3.12 billion, with all our focus end-markets performing better than anticipated, which resulted in total company revenue above the high end of guidance. Solid first-quarter results, guidance for the second quarter, and our early views into the second half of the year underpin a cautious optimism that NXP is successfully navigating through the cyclical downturn in our consumer-exposed businesses, while we see continued strength in our automotive and core-industrial businesses,” 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 15.6% annually. But as you can see below, last year quarterly revenue declined from $3.14 billion to $3.12 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).
Despite NXP Semiconductors revenues beating analyst estimates, this was still a slow quarter with a 0.48% revenue decline. NXP Semiconductors's revenue is continuing to decline, signal that the current downcycle is deepening.
Revenue growth went from positive to negative this quarter, and NXP Semiconductors expects it to stay negative next quarter with an estimated decline of 3.38% YoY and analysts think the declines will continue, with next twelve months estimated at 3.67% declines.
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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.
This quarter, NXP Semiconductors’s inventory days came in at 133, 35 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.
Key Takeaways from NXP Semiconductors's Q1 Results
With a market capitalization of $42.5 billion, more than $3.93 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 were impressed by the very optimistic revenue and EPS guidance NXP Semiconductors provided for the next quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was less good to see that the revenue growth was quite weak and inventory levels increased. It seems to us that this was a mixed but overall solid quarter for NXP Semiconductors. The company is up 5.25% on the results and currently trades at $174.7 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.