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Why NXP Can Tap into Automotive Semiconductor Opportunities

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Automotive semiconductor industry outlook

In the previous part of this series, we saw that the future of autonomous cars could significantly boost semiconductor content in vehicles. This trend would benefit NXP Semiconductors (NXPI). However, the autonomous car concept is still developing. It may take more than three years to come to market.

The new technology has led to the emergence of some ADAS (advanced driver assistance systems) components in premium, medium, and compact cars. NXP is well placed to tap into these opportunities, and you can already see some results. The company’s share in the automotive semiconductor market has increased by 1 percentage point year-over-year to 14.5%, according to data from Semicast.

The National Highway Traffic Safety Administration of the United States has mandated that all new cars be equipped with backup cameras by 2018. Automakers are moving forward, and the top 20 makers have committed to including emergency brake systems in all new vehicles by 2022.

IHS expects semiconductor and sensor revenue from ADAS to double to $4 billion by 2020 from $1.9 billion in 2015.

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NXP’s mid-term growth estimates

NXP Semiconductors expects global vehicle sales to grow 3% to 4% over the next three years but expects its revenue from the automotive segment to grow 10%. According to the company’s estimates, its core automotive applications—infotainment, secure car access, body and in-vehicle network, powertrain, and safety—should grow 6%, 7%, 4%, 4%, and 3%, respectively, between 2016 and 2019. The company expects infotainment content per vehicle to grow from $10 in 2006 to $18 to $45 in 2018.

Analyst Matthew Ramsay is even more optimistic. He expects NXP to surpass its targets. However, the company faces a challenge of increasing competition from Qualcomm (QCOM), Intel (INTC), and STMicroelectronics (STM).

The Semiconductor ETF (SMH) has holdings in 26 semiconductor stocks, including 13.1% exposure to INTC, 4.9% to NXPI, and 7.5% to QCOM.

However, the overall automotive semiconductor industry’s long- and mid-term outlooks are optimistic. Next, we’ll explore NXP’s outlook for the short and mid terms.

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