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3 Big Takeaways From NXP Semiconductors' Earnings Report

By Anders Bylund – Apr 29, 2020 at 7:54AM

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The automotive and industrial semiconductor specialist posted mixed first-quarter results and modest guidance, but the long-term business story still looks vibrant.

Dutch-Texan microchip maker NXP Semiconductors (NXPI -1.41%) reported first-quarter results late Monday evening. I would like to highlight three key takeaways from this coronavirus-marred report, but let's start with a quick look at the company's plain financial data.

NXP Semiconductors's first-quarter results by the numbers

Metric

Q1 2020

Q1 2019

Change

Analyst consensus 

Revenue

$2.02 billion

$2.10 billion

(4%)

$2.04 billion

GAAP net income (loss)

($21 million)

($16 million)

(31%)

N/A

Adjusted earnings per diluted share 

$2.16

$2

8%

$1.41

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

The revenue result was in line with NXP's preliminary report on April 7. Sales fell year over year in the automotive and communications infrastructure sectors while rising slightly in mobile and industrial computing. The company held $1.1 billion of cash equivalents at the end of this quarter, up from $1 billion in the previous quarter and down from $2.2 billion in the year-ago period.

Those are the basic financial figures. Here are the three most important lessons investors learned from the rest of this report.

1. Automotive trends

Orders from automakers fell 4% year over year and should run 30% lower in the next report, but the downtrend might be less sticky than expected. On the earnings call, CEO-elect Kurt Sievers noted that Chinese car sales are already tracking above the comparable period of 2019 as the country starts getting back to work. Moreover, a lot of car sales in that market are going to first-time buyers who don't want to deal with crowded mass-transit solutions in light of the COVID-19 pandemic.

Similar trends should emerge in other markets around the world, though the benefit of this increased demand is undermined by limited vehicle production volumes. It's unclear when the paused manufacturing lines will start rolling again. All things considered, things certainly could have been worse. Car sales might not knock our socks off in the early going, but NXP's analysis points to solid street-level demand for new vehicles.

A technician holds up a semiconductor chip for a close inspection.

Image source: Getty Images.

2. Guidance

NXP sees second-quarter sales falling roughly 19% year over year, landing near $1.8 billion. Adjusted earnings should stop in the vicinity of $260 million, or $0.93 per diluted share. The year-ago reading on this line showed earnings of $0.14 per share. In other words, soft revenue won't necessarily lead to limited bottom-line profits. NXP's fiscal discipline was impressive in the first quarter and the guidance targets point to more of the same in the upcoming report.

3. Getting back to business

This company is a leader in several key markets, to the point where semiconductor giant Qualcomm (QCOM -2.01%) was ready to pay a staggering $44 billion for the company in 2018. That nixed deal would have given Qualcomm an instant leg up on the competition in automotive computing, mobile security solutions, and near-field communications (NFC).

These muscular market positions are still intact and NXP should be ready to hit the ground running once the coronavirus pandemic fades away.

"Our focused investments in leading-edge new products and customer engagements in fast-growing segments such as ADAS and automotive electrification, in secure connected edge processing for the IoT, in the secure ultra wideband, are all very durable and enjoy significant design interaction," Sievers said. "Once this pandemic is under control, NXP will emerge stronger and will resume its growth within its strategic focus areas, consistent with our prior long-term expectations. We execute consistently and we are committed to our long-term strategy."

As an NXP shareholder myself, that's all I really needed to hear. This company is ready to spring back into action as soon as market conditions allow it to.

Anders Bylund owns shares of NXP Semiconductors. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends NXP Semiconductors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NXP Semiconductors N.V. Stock Quote
NXP Semiconductors N.V.
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$152.94 (-1.41%) $-2.19
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