NXP Semiconductors (NASDAQ:NXPI) Reports Q3 In Line With Expectations, Next Quarter Sales Guidance Is Optimistic

Adam Hejl /
2021/11/01 4:19 pm EDT
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Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results in line with analyst expectations in Q3 FY2021 quarter, with revenue up 26.2% year on year to $2.86 billion. Guidance also exceeded expectations with next quarter revenues guided to $3 billion, or 2.98% above analyst estimates. NXP Semiconductors made a GAAP profit of $526 million, improving on its loss of $18 million, in the same quarter last year.

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NXP Semiconductors (NXPI) Q3 FY2021 Highlights:

  • Revenue: $2.86 billion vs analyst estimates of $2.85 billion (small beat)
  • EPS (GAAP): $1.91
  • Revenue guidance for Q4 2021 is $3 billion at the midpoint, above analyst estimates of $2.91 billion
  • Free cash flow of $724 million, up 48.9% from previous quarter
  • Inventory Days Outstanding: 84, down from 87 previous quarter
  • Gross Margin (GAAP): 55.3%, up from 48.6% same quarter last year

"NXP delivered third-quarter revenue of $2.9 billion, an increase of 26 percent versus the year-ago period, and better than the mid-point of our guidance. Overall, customer adoption of our latest products as well as long-term demand trends across our end markets remain at unprecedented levels. We continue to take additional actions to assure supply to our customers, which underpins our continued confidence in robust growth in the remainder of 2021 and through 2022,” 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.

Sales Growth

NXP Semiconductors' revenue growth over the last three years has been slow, averaging 4.91% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $2.26 billion to $2.86 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 26.2%, topping analyst estimates by 0.34%. This marks 5 straight quarters of revenue growth, implying we are mid-cycle for NXP Semiconductors, as a typical upcycle tends to last 8-10 quarters.

NXP Semiconductors believes the growth is set to accelerate, and is guiding for revenue to grow 32.3% YoY next quarter, and Wall St analysts are estimating growth 10.6% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

NXP Semiconductors Inventory Days Outstanding

This quarter, NXP Semiconductors’ inventory days came in at 84, 12 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from NXP Semiconductors' Q3 Results

Sporting a market capitalization of $53.2 billion, more than $2.3 billion in cash and with positive free cash flow over the last twelve months, we're confident that NXP Semiconductors has the resources it needs to pursue a high growth business strategy.

We were very impressed by the strong improvements in NXP Semiconductors’ gross margin this quarter. And we were also glad to see the improvement in operating margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is flat on the results and currently trades at $204.5 per share.

NXP Semiconductors may have had a good quarter, so should you invest 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.