Embedded-semiconductor specialist NXP Semiconductors (NASDAQ:NXPI) reported first-quarter results late Monday evening. The company delivered both revenue and operating profit above the midpoints of management's guidance ranges, despite undeniable downtrends across the board.

NXP Semiconductors' first-quarter results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$2.10 billion

$2.27 billion

(8%)

Net income (loss)

($21 million)

$276 million

N/A

GAAP earnings (loss) per share (diluted)

($0.07)

$0.94

N/A

Data source: NXP Semiconductors.

What happened with NXP Semiconductors this quarter?

  • Revenues were soft across the board. Industrial sales had the weakest showing, falling 14% year over year to $368 million. At the other end of that spectrum, automotive revenue fell 8% to $1.04 billion.
  • Three months ago, management guided first-quarter sales to roughly $2.09 billion alongside operating profit of $44 million. NXP edged out the revenue target by a rounding error and delivered $54 million in GAAP operating profit.
  • NXP produced $152 million of free cash flow in the first quarter, 73% below the $561 million seen in the year-ago period.
  • The company bought back 8.5 million shares of its own stock during this quarter, reducing the share count by 3% at a total cost of $715 million.
A handful of $100 bills rolled into the shape of a car

Image source: Getty Images.

What management had to say

The product mix in NXP's largest division -- automotive computing -- is shifting toward higher-growth target markets. On the first-quarter earnings call, CEO Rick Clemmer explained (based on a transcript by Seeking Alpha):

Thirty percent of our auto business is focused on high-growth sectors like ADAS [Advanced Driver Assistance Systems] and electrification, which has grown at nearly 40% in compounded growth rate since 2015, and which we expect to continue to grow at [a] 25% to 30% compounded growth rate as the business becomes more material in size.

The other 70% of our automotive business represents a very large and entrenched core business with hot barriers to entry. We anticipate our core business will grow at a modest premium to the overall auto semiconductor market.

Adding more color, Clemmer noted that ADAS accounts for about 10% of NXP's automotive revenue these days, but the business has grown by a compound annual rate of nearly 50% over the last four years. The company is already a leader in this space and expects to continue outgrowing the general ADAS market by about 40% for the foreseeable future.

Looking ahead

Management provided the following guidance targets for the second quarter, presented here as the midpoint of each guidance range:

  • Revenue should fall roughly 4% to $2.20 billion.
  • Gross profit is trending toward approximately $1.15 billion, about 3% below the year-ago result.
  • GAAP operating income was guided to $70 million, a 10% year-over-year decline.

Beyond that, Clemmer sees an improving demand environment in the second half of 2019, with the caveat that macroeconomic tensions remain unpredictable around the world, especially in China.