NXP Semiconductors (NXPI)

Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) met Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 2.4% year on year to $3.17 billion. The company expects next quarter’s revenue to be around $3.3 billion, coming in 1.9% above analysts’ estimates. Its non-GAAP profit of $3.11 per share was in line with analysts’ consensus estimates.

Company Overview

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.

NXPI's peers and competitors include Texas Instruments (NASDAQ:TXN), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), ON Semi (NASDAQ:ON), Microchip Technology (NASDAQ: MCHP) , and Analog Devices (NASDAQ: ADI).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, NXP Semiconductors’s sales grew at a decent 7.5% compounded annual growth rate over the last five years. Its growth was slightly above the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. NXP Semiconductors’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.4% over the last two years.

This quarter, NXP Semiconductors reported a rather uninspiring 2.4% year-on-year revenue decline to $3.17 billion of revenue, in line with Wall Street’s estimates. Despite meeting estimates, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 6.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.4% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity 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 DIO came in at 161, which is 40 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

NXP Semiconductors’s gross margin is well ahead of its semiconductor peers, and its strong pricing power is an output of its differentiated, value-add products. As you can see below, it averaged an excellent 56.4% gross margin over the last two years. That means NXP Semiconductors only paid its suppliers $43.65 for every $100 in revenue.

This quarter, NXP Semiconductors’s gross profit margin was 56.3%, down 1.1 percentage points year on year. NXP Semiconductors’s full-year margin has also been trending down over the past 12 months, decreasing by 1.8 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

NXP Semiconductors has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 26.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, NXP Semiconductors’s operating margin rose by 3.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, NXP Semiconductors generated an operating margin profit margin of 28.1%, down 2.3 percentage points year on year. Since NXP Semiconductors’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

NXP Semiconductors’s EPS grew at a decent 14.4% compounded annual growth rate over the last five years, higher than its 7.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into NXP Semiconductors’s earnings to better understand the drivers of its performance. As we mentioned earlier, NXP Semiconductors’s operating margin declined this quarter but expanded by 3.5 percentage points over the last five years. Its share count also shrank by 9%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, NXP Semiconductors reported adjusted EPS of $3.11, down from $3.45 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects NXP Semiconductors’s full-year EPS of $11.65 to grow 15.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

NXP Semiconductors has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 19% over the last two years, slightly better than the broader semiconductor sector.

Taking a step back, we can see that NXP Semiconductors’s margin dropped by 10.4 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

NXP Semiconductors historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 18%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

NXP Semiconductors reported $3.45 billion of cash and $12.24 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $4.51 billion of EBITDA over the last 12 months, we view NXP Semiconductors’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $212 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see NXP Semiconductors’s revenue guidance for next quarter beat analysts’ expectations. We were also glad its inventory levels shrunk. On the other hand, its revenue and EPS were just in line. Zooming out, we still think this was a solid quarter given encouraging the outlook. The stock traded up 2.4% to $227 immediately following the results.

Updated: December 4, 2025 at 9:14 PM EST

When considering an investment in NXP Semiconductors, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

NXP Semiconductors’s business quality ultimately falls short of our standards. Although its revenue growth was decent over the last five years and is expected to accelerate over the next 12 months, its cash profitability fell over the last five years. And while the company’s healthy gross margins indicate it has pricing power, the downside is its projected EPS for the next year is lacking.

NXP Semiconductors’s P/E ratio based on the next 12 months is 17.3x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $258.43 on the company (compared to the current share price of $227.07).