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Evaluating NXP Semiconductors’ Share Plunge Post-3Q15 Earnings Release

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NXP’s shares in 3Q15

Previously in this series, we discussed how Seagate Technology posted weak earnings in 1Q16, whereas ON Semiconductor Corporation (ON) posted strong earnings for its corresponding quarter, 3Q15. Now let’s evaluate NXP Semiconductor’s (NXPI) performance in 3Q15 before it completes its acquisition of Freescale Semiconductor (FSL) in 4Q15.

NXP Semiconductors, which supplies chips to Apple (AAPL), reported its 3Q15 earnings on October 29, 2015. On a YoY (year-over-year) basis, the company’s revenue was flat at $1.52 billion, falling behind the consensus analyst estimate of $1.55 billion. However, NXP’s non-GAAP (generally accepted accounting principles) EPS (earnings per share) rose from $1.35 in 3Q14 to $1.57 in 3Q15, beating the analyst estimate of $1.49. Still, the company reported weak 4Q15 guidance following its 3Q15 earnings release.

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After the earnings announcement, NXP’s shares plunged by almost 19% in early trading, opening at $74.51 on October 29, 2015.

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Revenue by segment

Revenues from NXP’s High-Performance Mixed-Signal segment rose by 2.2% YoY to $1.16 billion in 3Q15. An increase in revenues from automotive, embedded, and identification devices were offset by a 9.4% YoY decrease in power and security. Meanwhile, revenues from standard products fell by 2.4% YoY to $325 million in 3Q15.

Profitability and cash position

In 3Q15, NXP Semiconductor’s non-GAAP gross profit rose by 3.2% YoY (year-over-year) to $748 million, and its operating income rose by 15.1% YoY to $449 million.

In 3Q15, NXP generated $340 million in cash from operations. It spent $158 million in share buybacks and $51 million in dividend payments. On the same day of its 3Q15 earnings announcement, the company expanded its share repurchase program to 20 million shares. As of October 4, 2015, the company had total cash reserves of $2.49 billion.

4Q15 guidance

In 4Q15, NXP expects its revenue to fall into the low-to-upper teens range because customers are taking back orders amid the slowing global economy. This trend, in turn, is causing a pileup in the inventory of unsold chips. The company expects its non-GAAP gross margin to be in the range of 48.5%–49.5% in 4Q15.

You can invest in NXP Semiconductor through the PowerShares QQQ (QQQ), which has 0.47% exposure to the company’s stock.

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