Please ensure Javascript is enabled for purposes of website accessibility

NXP Semiconductors Started Bouncing Back Already

By Anders Bylund – Feb 6, 2020 at 7:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The leading supplier of chips for automotive computing and mobile identity management saw the bottom end of this cyclical trough in 2019, based on currently rising market trends.

Embedded chip maker NXP Semiconductors (NXPI -1.41%) reported fourth-quarter results late Monday evening. The company edged out Wall Street's revenue targets while smashing analysts' earnings estimates, despite modest or even falling year-over-year comparisons.

NXP Semiconductors' fourth-quarter results by the numbers

Metric

Q4 2019

Q4 2018

Change

Analyst Consensus

Revenue

$2.30 billion

$2.40 billion

(4%)

$2.28 billion

GAAP net income

$123 million

$289 million

(57%)

N/A

Adjusted earnings per share (diluted)

$2.51

$2.47

1.6%

$2.01

Data source: NXP Semiconductors. GAAP = generally accepted accounting principles.

Sales fell by single-digit percentages year over year in all four of NXP's reported target markets. At the same time, the fourth-quarter drops were smaller than NXP's full-year declines in the automotive and industrial segments. In both cases, the reported results also came in above the midpoints of management's guidance targets. All things considered, it looks like these key markets are ready to swing back from a few dark quarters of sliding sales and modest operating profits.

The view from the inside

CEO Rick Clemmer supported this analysis in the earnings call.

"We are confident that as new products ramp into volume production, they will underpin both our top-line growth, our longer-term gross margin targets, and will yield significant cash flow," Clemmer said. "Then, as the end markets begin to rebound, which we are beginning to initially see, especially in our automotive and industrial end markets, we anticipate a healthy improvement in our core business, which will also provide positive tailwinds to growth."

Within the automotive computing rebound, NXP is already recording double-digit sales growth for radar components and battery management solutions. Both of these sub-markets factor into the rising interest in self-driving and electric vehicles, in both cases led by major NXP client Tesla (TSLA -4.59%).

Computer rendering of a modern passenger car driving on a glossy black road covered in green zeroes and ones.

Image source: Getty Images.

What's next for NXP?

Based on these results and market trends, NXP offered guidance for the first quarter of 2020. At the midpoint of each target range, management's first-quarter guidance calls for revenues to rise by approximately 6% to $2.22 billion. Adjusted operating profits should land near $613 million, 10% above the year-ago period's result.

This wasn't exactly a snappy return to full health, but NXP seems to have bounced off the bottom of a cyclical trough period. The company is reporting stable sales and management sees further improvements developing in NXP's most important markets. The overall tenor of NXP's report carried echoes of semiconductor peers Skyworks Solutions (SWKS -1.37%) and Intel (INTC -1.96%), both of whom posted solid results alongside rosy guidance over the last couple of weeks.

So it looks like we're standing in the middle of a sectorwide recovery here. All of the stocks mentioned above are already crushing the broader market's returns over the last 52 weeks and I wouldn't be surprised to see this broad outperformance sticking around as the financial rebound trends play out. The bottom of this cycle passed us by in the summer of 2019 but it's not too late to take advantage of some great buy-in opportunities on high-quality tech stocks.

Anders Bylund owns shares of Intel, NXP Semiconductors, and Tesla. The Motley Fool owns shares of and recommends Skyworks Solutions and Tesla. The Motley Fool recommends NXP Semiconductors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NXP Semiconductors N.V. Stock Quote
NXP Semiconductors N.V.
NXPI
$152.94 (-1.41%) $-2.19
Skyworks Solutions, Inc. Stock Quote
Skyworks Solutions, Inc.
SWKS
$94.34 (-1.37%) $-1.31
Intel Corporation Stock Quote
Intel Corporation
INTC
$27.52 (-1.96%) $0.55
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$275.33 (-4.59%) $-13.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.