Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 8.98% year on year to $3.31 billion. However, guidance for the next quarter was less impressive, coming in at $3 billion at the midpoint, being 5.62% below analyst estimates. NXP Semiconductors made a GAAP profit of $734 million, improving on its profit of $610 million, in the same quarter last year.
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NXP Semiconductors (NXPI) Q4 FY2022 Highlights:
- Revenue: $3.31 billion vs analyst estimates of $3.29 billion (small beat)
- EPS: $2.76 vs analyst expectations of $2.77 (small miss)
- Revenue guidance for Q1 2023 is $3 billion at the midpoint, below analyst estimates of $3.17 billion
- Free cash flow of $843 million, roughly flat from previous quarter
- Inventory Days Outstanding: 114, up from 97 previous quarter
- Gross Margin (GAAP): 57%, up from 56.1% same quarter last year
“NXP delivered full-year 2022 revenue of $13.21 billion, an increase of 19 percent year-on-year, with revenue increasing across all of our focus end-markets. In the fourth quarter, revenue was $3.31 billion, an increase of 9 percent year-on-year, in line with the mid-point of our guidance range. In review, 2022 was a very good year for NXP, with strong execution resulting in record revenue, solid profit growth, and healthy free cash flow generation. Additionally, we experienced unprecedented year-on-year design win traction across the entire portfolio,” 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 15.3% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $3.03 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).
While NXP Semiconductors beat analysts' revenue estimates, this was a very slow quarter with just 8.98% revenue growth. This marks 10 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.
NXP Semiconductors's revenue growth was positive this quarter, but the company is guiding to decline of 4.33% YoY next quarter, while analysts expect to see declines of 2.12% 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.
This quarter, NXP Semiconductors’s inventory days came in at 114, 18 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 Q4 Results
With a market capitalization of $47 billion, more than $3.84 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 struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, it seems to us that this was a complicated quarter for NXP Semiconductors. The company is down 2.04% on the results and currently trades at $175.81 per share.
NXP Semiconductors may have had a tough quarter, but does that actually create an opportunity to 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.