NXP Semiconductors (NXPI -1.05%) is set to announce its fourth quarter results after the market close on Wednesday, Feb. 3. This will be the first earnings report since the company's merger with Freescale Semiconductor was completed, a move that will increase NXP annual revenue to more than $10 billion.

Shares of NXP have tumbled during the past three months, in part due to NXP's weak guidance for the fourth quarter. Management stated that it was seeing weakening demand in all of its segments, and the company expects a significant decline in revenue during the quarter. Here's what investors need to know going into the earnings report.

Source: NXP Semiconductors

What analysts are expecting
The average analyst estimate calls for NXP fourth quarter revenue to slump 14.8% year-over-year, to $1.31 billion. The merger with Freescale closed in early December, and this estimate doesn't appear to include any Freescale revenue, meaning that the total number reported for the combined company will be higher. Analysts expect non-GAAP earnings of $1.07 per share, down about 21% year-over-year and down 32% from the third quarter.

NXP's own guidance calls for sequential revenue declines in all of its segments:


Q4 2015 Sequential Revenue Guidance


Down high-single to low-double digits

Secure Identification Solutions

Down low-double digits to mid-teens percentage

Secure Connected Devices

Down high-single to low-double digits

Secure Interfaces and Power

Down high-20% to low-30%

Standard Products

Down low-double digits to mid-teens percentage


Down low to upper-teens percentage

Source: NXP Semiconductors Q3 2015 earnings report 

Again, this guidance excludes any effects from the Freescale merger, so the actual results could be quite different.

Guidance and merger progress
With revenue set to fall during the fourth quarter, due largely to events outside of NXP's control, management's commentary during the conference call should give investors a better sense of the company's long-term growth expectations.

The good news is that the steep revenue decline expected during the fourth quarter isn't as bad as it seems. During the previous conference call, NXP CEO Richard Clemmer pointed out that high levels of channel inventory had built up, driven by economic uncertainty, and this contributed to the company's expectation that sales will be quite a bit lower during the fourth quarter. Excluding this effect, Clemmer estimates that sales would only be down a low to mid-single digit percentage. It may take multiple quarters for the inventory situation to be corrected, but assuming demand doesn't weaken further, sales growth should start looking better in the coming quarters.

With the merger between NXP and Freescale finally closed, expect management to update investors on the progress of the integration. The company previously stated that it expects to achieve $200 million in cost savings during 2016 alone, with a long-term goal of $500 million of cost savings. These goals remained unchanged after the weak guidance for the fourth quarter was announced.

NXP also expects the merger to be accretive to non-GAAP earnings in 2016, although with earnings set to decline during the first quarter, it's difficult to tell whether this increase will counteract the effect of lower sales. This also assumes that the cost cuts are successfully implemented; companies can be overly optimistic regarding synergies when it comes to mergers and acquisitions, and only time will tell whether the full $500 million of cuts are achieved.

Following the merger, NXP is in a strong position. The company is now the market leader in the automotive semiconductor industry, and with cars becoming more connected, there are long-term opportunities for growth. NXP's fourth quarter results will be rough and its first quarter guidance may be disappointing, as well. If demand continues to weaken, or if the inventory issues aren't resolved, weak guidance could be coming.

Investors should always take the long view, and these short-term issues don't matter much in the long run. The semiconductor industry is cyclical, and NXP's results will fluctuate along with demand. But with the merger with Freescale now completed, the company appears to be well positioned for the future.