NXP Semiconductors (NASDAQ:NXPI) Q2: Beats On Revenue, Next Quarter Sales Guidance Is Optimistic

Kayode Omotosho /
2022/07/25 4:10 pm EDT
Add to Watchlist

Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results ahead of analyst expectations in the Q2 FY2022 quarter, with revenue up 27.5% year on year to $3.31 billion. Guidance for next quarter's revenue was $3.42 billion at the midpoint, 2.95% above the average of analyst estimates. NXP Semiconductors made a GAAP profit of $683 million, improving on its profit of $406 million, in the same quarter last year.

Is now the time to buy NXP Semiconductors? Access our full analysis of the earnings results here, it's free.

NXP Semiconductors (NXPI) Q2 FY2022 Highlights:

  • Revenue: $3.31 billion vs analyst estimates of $3.26 billion (1.43% beat)
  • EPS (GAAP): $2.53
  • Revenue guidance for Q3 2022 is $3.42 billion at the midpoint, above analyst estimates of $3.32 billion
  • Free cash flow of $551 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 93, up from 88 previous quarter
  • Gross Margin (GAAP): 56.8%, up from 54.7% same quarter last year

“NXP delivered quarterly revenue of $3.31 billion, an increase of 28 percent year-on-year and above the mid-point of our guidance range. Notwithstanding the clear macro-economic cross currents, NXP continues to perform well. Customer demand within the Auto and Industrial & IoT end-markets continues to exceed our incrementally improving supply, even as we risk-adjust our long term orders. New design win commitments are remarkably strong across our focus end-markets, which underpins confidence that our investments are well aligned with the long-term market requirements,” 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 11.9% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $2.59 billion to $3.31 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 good quarter for NXP Semiconductors as revenues grew 27.5%, topping analyst estimates by 1.43%. This marks 8 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 19.7% YoY next quarter, and Wall St analysts are estimating growth 8.31% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 93, 2 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 Q2 Results

With a market capitalization of $45.9 billion, more than $3.54 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 that the revenue guidance for the next quarter exceeded analysts' expectations. 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 $175.14 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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