NXP Earnings: Automotive Chip Demand Remains Steady; Raising Fair Value Estimate by Nearly 7%

Narrow-moat NXP Semiconductors NXPI reported healthy second-quarter results and provided investors with a solid third-quarter forecast that was modestly ahead of our prior expectations, as the company is still seeing resilient demand for automotive semiconductors. We’ve raised our fair value estimate to $240 per share from $225 as we’re a bit more optimistic about the near term, and we view the shares as modestly undervalued.

Revenue in the June quarter was $3.30 billion, up 6% sequentially and flattish year over year but at the high end of the firm’s guidance of $3.1 billion-$3.3 billion. All end markets came in near or above management’s initial expectations. Automotive chip sales remained the bright spot for NXP, up 2% sequentially and 9% year over year. The global automotive chip shortage appears to be alleviating, yet NXP is still prospering from healthy demand for semis going into electric vehicles. Industrial revenue was down 19% year over year but rose 15% sequentially, as demand in China is starting a slow, steady recovery from a prior bottom. Communications infrastructure and other revenue also fared well, up 8% sequentially and 15% year over year, with lumpy base station demand offset by healthy demand for secure chip cards. Higher sales levels enabled adjusted gross margin to expand 20 basis points sequentially to 58.4%, above management’s midterm target.

For the September quarter, NXP expects revenue of $3.3 billion-$3.5 billion, which at the midpoint would represent 3% sequential growth and only a 1% annual decline. NXP expects revenue in the second half of 2023 to exceed the first half of the year as well as the second half of 2022. We think this implies that fourth-quarter revenue should come in at $3.35 billion, or perhaps higher, if NXP can achieve the midpoint of guidance in the third quarter.