Dutch chipmaker NXP Semiconductors (NXPI +3.83%) reported second-quarter results on July 29. The provider of automotive computing and digital security chips posted strong gains in a handful of niche markets, which balanced out general weakness in other sectors.
NXP's second-quarter results: The raw numbers
|
Metric |
Q2 2019 |
Q2 2018 |
Change |
|---|---|---|---|
|
Revenue |
$2.22 billion |
$2.01 billion |
6% |
|
Net income attributable to stockholders |
$41 million |
($21 million) |
N/A |
|
GAAP earnings per share (diluted) |
$0.14 |
($0.07) |
N/A |
Data source: NXP Semiconductors. GAAP = generally accepted accounting principles.
What happened with NXP this quarter?
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Revenue was in line with management's guidance range, the midpoint of which was $2.20 billion. Unadjusted operating income of $157 million exceeded NXP's guidance range, the midpoint of which was $150 million.
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Sales of automotive chips were $1.03 billion, 10% below the year-ago period's result. Products supporting radar-based ADAS systems recorded double-digit-percentage growth, while car production volumes slowed in major markets.
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Industrial and Internet of Things revenues fell 14% to $390 million. U.S./China trade tensions made it difficult to find buyers for these chips.
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Mobile sales rose 25% to $297 million. A large Chinese handset maker committed to NXP's mobile wallet solutions and started to ramp up chip orders in the quarter. This unnamed device designer is reportedly aiming for a larger global market share, and is willing to absorb some tariff costs in exchange for premium features. In this case, NXP's wallet chips provide secure access and payment for end-user activities such as mass transit ticket systems.
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Sales in the communications infrastructure segment increased by 19% to $499 million. Customers demonstrated strong interest in NXP's Massive MIMO solutions, which allow wireless communications systems to combine and amplify radio signals from a large number of antennas. This infrastructure improvement is compatible with current 4G systems and allows for efficient drop-in upgrades to 5G technologies. NXP expects 5G orders to drive Massive MIMO orders much higher in 2020 and beyond.
Image source: Getty Images.
What management had to say
On the Q2 earnings call, CEO Rick Clemmer explained how NXP expects to sustain its growth in the mobile market at a time when handset sales volumes appear to have peaked.
"Our focus in the mobile market is primarily aimed at the evolution and adoption of the mobile wallet and associated services like transit ticketing," Clemmer said. "We said our growth in the mobile market would be a function of the increased attach rate, not the fundamental handset unit growth. We believe the mobile wallet attach rate in 2018 was about 30% of all phones, and we are targeting this to expand about 50% by 2021."
In other words, the company's strategy involves winning a larger presence in each handset, rather than relying on growth in the underlying phone market. The aforementioned wallet chip orders from a large Chinese smartphone maker play right into this ambition.
Looking ahead
NXP's management provided the following guidance targets, presented here as the midpoint of each guidance range.
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Total revenues should fall 8% year over year to $2.24 billion.
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Operating income should land near $180 million, down from $2.2 billion in the year-ago period. Comparisons between these reporting periods are tricky due to the $2 billion merger breakup fee NXP collected from Qualcomm (QCOM +3.22%) in Q3 2018.
