NXP Semiconductors (NXPI)

Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 9.3% year on year to $2.84 billion. The company expects next quarter’s revenue to be around $2.9 billion, coming in 1.1% above analysts’ estimates. Its non-GAAP profit of $2.64 per share was 1.4% above 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.

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, NXP Semiconductors grew its sales at a mediocre 7% compounded annual growth rate. This fell short of our benchmark for the semiconductor sector and is a rough starting point for our analysis. 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 performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.3% annually.

This quarter, NXP Semiconductors reported a rather uninspiring 9.3% year-on-year revenue decline to $2.84 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 7.3% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 1.3% over the next 12 months. While this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

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 168, which is 53 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

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 56.6% gross margin over the last two years. That means NXP Semiconductors only paid its suppliers $43.36 for every $100 in revenue.

NXP Semiconductors produced a 55% gross profit margin in Q1, down 2.1 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

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 a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 27.2%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, NXP Semiconductors’s operating margin rose by 17.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, NXP Semiconductors generated an operating profit margin of 25.5%, down 1.9 percentage points year on year. Since NXP Semiconductors’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

NXP Semiconductors’s EPS grew at a decent 11.3% compounded annual growth rate over the last five years, higher than its 7% 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 quality to better understand the drivers of its performance. As we mentioned earlier, NXP Semiconductors’s operating margin declined this quarter but expanded by 17.5 percentage points over the last five years. Its share count also shrank by 8.9%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, NXP Semiconductors reported EPS at $2.64, down from $3.24 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1.4%. Over the next 12 months, Wall Street expects NXP Semiconductors’s full-year EPS of $12.47 to shrink by 2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

NXP Semiconductors has shown impressive cash profitability, and if maintainable, will be in a position to ride out cyclical downturns more easily while continuing to invest in new and existing products. The company’s free cash flow margin averaged 18.7% over the last two years, better than the broader semiconductor sector.

Taking a step back, we can see that NXP Semiconductors’s margin dropped by 10.1 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity.

NXP Semiconductors’s free cash flow clocked in at $427 million in Q1, equivalent to a 15.1% margin. The company’s cash profitability regressed as it was 4.9 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

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’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 16.9%, slightly better than typical semiconductor business.

NXP Semiconductors reported $3.99 billion of cash and $11.73 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 $4.89 billion of EBITDA over the last 12 months, we view NXP Semiconductors’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $183 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 good to see NXP Semiconductors narrowly top analysts’ adjusted operating income expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased and next quarter's EPS guidance was just in line, seemingly not enough to excite the market. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives, and the stock traded down 8.1% to $180.70 immediately following the results.

Updated: July 10, 2025 at 10:21 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

NXP Semiconductors isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while NXP Semiconductors’s expanding operating margin shows the business has become more efficient, its cash profitability fell over the last five years.

NXP Semiconductors’s P/E ratio based on the next 12 months is 19.1x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $242.52 on the company (compared to the current share price of $233.20).