uploads///A_Semiconductors_NXP Q earnings

NXP Semiconductors Holds First Earnings Call In 21 Months

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Nov. 20 2020, Updated 11:48 a.m. ET

NXP’s revenue

NXP Semiconductors (NXPI) supplies HPMS (high-performance mixed-signal) automotive, secure ID, connected device, infrastructure, and interface solutions. In fiscal Q2 2018, NXP’s revenue rose 4% YoY (year-over-year) to $2.29 billion as strong demand for automotive and connected devices was partially offset by weakness in infrastructure interfaces and secure ID. The company’s RF (radio-frequency) power business was also hit by the US sales ban on China’s ZTE, which has now been lifted.

In fiscal Q3 2018, NXP expects its revenue to grow 6% sequentially to $2.5 billion at the midpoint, driven by strong demand in automotive and connected devices. It expects its revenue to grow at a three-year compound annual rate of 5%–7%, 50% faster than its addressable market.

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Gross margin

From its $2.29 billion in revenue, NXP generated a non-GAAP gross margin of 52.8% in fiscal Q2 2018, narrower than its fiscal Q2 2017 margin of 53%. Its gross margin narrowed as it increased investments in new products and the US dollar strengthened. In fiscal Q3 2018, NXP expects to improve its gross margin to 53.3% and maintain it at 53%–57%. NXP’s gross margin is narrower than Texas Instruments’ (TXN) and Maxim Integrated’s (MXIM) gross margins of 65.2% and 68%.

Operating margin

NXP’s non-GAAP operating margin narrowed from 28.4% in fiscal Q2 2017 to 27% in fiscal Q2 2018 as its operating expenses rose 9.2% YoY, faster than its revenue, which rose only 4% YoY. Its fiscal Q2 2018 operating expense ratio was 25.8%, higher than its target expense ratio of 20%–24%.

In fiscal Q3 2018, NXP expects to improve its operating margin to 29.1% at the midpoint. In the long term, it expects to improve its operating margin to 31%–34% and bring it in line with TXN’s and Maxim’s margins of 42.6% and 35%, respectively. Next, we’ll look at NXP’s end markets.

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