NXP Semiconductors Earnings: Few Surprises and Resilient Automotive Revenue; Shares Undervalued

Narrow-moat NXP Semiconductors NXPI reported solid third-quarter results and we’re encouraged by the firm’s resilient revenue guidance for the December quarter. We maintain our $240 fair value estimate and view shares as undervalued for long-term, patient investors willing to ride out some relatively bumpy conditions in near-term semiconductor demand.

Revenue in the September quarter was $3.43 billion, flat year over year, but up 4% sequentially and above the midpoint of guidance of $3.40 billion. Automotive revenue remains the bright spot, up 1% sequentially and 5% year over year, thanks to ongoing content gains, especially in electric vehicles, or EVs. Industrial revenue was down 15% year over year but grew 5% sequentially, with demand in China “solidly improving,” albeit off a lower base. Mobile revenue rose 33% sequentially in the seasonally strong quarter, but was down 8% year over year, consistent with an overall malaise in smartphone demand. Adjusted gross margin was flattish sequentially at 58.5%, in line with guidance.

NXP expects revenue in the December quarter to be $3.4 billion at the midpoint of guidance, down 1% sequentially but up 3% year over year. By end market, year over year, NXP expects revenue to be up about 5% in auto, about 9% in industrial, and down about 5% in mobile and comm infrastructure, respectively. Adjusted gross margin is forecasted to be flattish sequentially at 58.5%.

NXP hinted that it expects a mid- to high-single-digit sequential decline in the March 2024 quarter, consistent with normal seasonality, but we’re encouraged that the firm still expects revenue growth in 2024, despite a shaky macroeconomic environment. Some of the growth will come from NXP refilling its channel inventory and shipping more chips to distributors and customers (including auto), but there are still some healthy long-term demand drivers for NXP, with content gains in EVs being a highlight.