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NXP Semiconductors Expects Softer Q1 Revenues

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NXP Semiconductors (NASDAQ:NXPI) announced its preliminary results for the first quarter of 2020 on Tuesday. Now, the company expects softer revenues in the first quarter compared to the earlier forecast announced in March. On March 2, NXP slashed its revenue outlook for the current quarter. Originally, the company expected its first-quarter revenues to be $2.195 billion–$2.255 billion during the fourth-quarter earnings call on February 3. The company cut its revenue forecast amid the uncertainty arising from the coronavirus outbreak. NXP Semiconductors will report its first-quarter earnings results on April 28.

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NXP CEO Richard Clemmer said, “While the supply chain disruption experienced post Lunar New Year in China appears to be subsiding, the end market demand trends in the rest of the world have started to significantly deteriorate.” NXP, which is a leader in the automotive chip market, faces weak demand outside of China. Many countries have imposed a lockdown due to the spreading coronavirus. The company’s CEO also highlighted that there were increased headwinds in the automotive market demand throughout March. Many global auto OEMs outside China have shut production lines.

The company decided to stall the shipments of roughly $150 million of orders to its distribution partners to maintain a normal channel inventory.

NXP Semiconductors’ Q1 expectations

NXP Semiconductors expects revenues of $2.02 billion in the March-ending quarter. The amount represents a 3.5% YoY (year-over-year) decline compared to the same quarter last year. The company also expects an adjusted gross margin of 51.8% and an adjusted operating margin of 24.8%.

Analysts expect first-quarter revenues of $2.07 billion—down 1.16%. They also expect an adjusted gross margin of 52.2% in the first quarter. The adjusted EPS will likely decline by 13.4% to $1.44 per share in the first quarter. For 2020, analysts expect the company’s revenues to decline by 3.9% to $8.53 billion. They expect the earnings to fall by 14.1% to $6.49 per share.

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NXP Semiconductors’ financial performance

The company supplies chips to automotive, industrial, IoT (Internet-of-Things), mobile, and communications infrastructure clients. NXP Semiconductors supplies microprocessors, connectivity, and security solutions to its clients. The company posted revenues of $2.30 billion in the fourth quarter. The revenues beat the consensus estimate by 0.83% but lagged revenues of $2.40 billion in the same quarter last year by 4.2% YoY. Notably, the company has delivered upbeat revenues for the past four consecutive quarters. The revenues have declined on a YoY basis for the past five consecutive quarters.

In the fourth quarter, NXP reported an adjusted EPS of $1.99, which missed analysts’ estimates of $2.02 per share. The earnings declined by 6.6% from the year-ago earnings of $2.13 per share. Meanwhile, the adjusted operating income was 6% lower YoY at $687 million. The adjusted gross margins rose by 110 basis points to 54.2%, while the adjusted operating margin fell by 50 basis points to 29.9% in the fourth quarter.

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On December 6, 2019, NXP completed the acquisition of Marvell Technology’s (NASDAQ:MRVL) Wi-Fi and bluetooth business. NXP expects Marvell’s unit to double its business revenues by the end of 2022. The unit contributed around $300 million to Marvell’s revenues in fiscal 2019. Notably, Qualcomm (NASDAQ:QCOM) was interested in buying NXP in October 2016. Qualcomm had to terminate the $44 billion deal in July 2018. The deal faced regulatory issues amid the US-China trade war. In March 2019, there were rumors that South Korean tech giant Samsung (OTCMKTS:SSNLF) wanted to buy NXP.

NXP Semiconductors rewards its shareholders

During the fourth quarter, NXP repurchased 0.7 million shares worth $74 million and paid quarterly dividends of $105 million. In 2019, the company spent $1.76 billion on its shareholders to buyback $1.4 billion worth of shares and paid dividends of $319 million. The company’s board approved resuming its share buyback program of up to $2 billion in 2020. At the end of March, NXP had a cash balance of $1.1 billion. Meanwhile, the company has a $1.1 billion revolving credit facility.

I think that the company’s share repurchase program will boost the earnings growth in 2020 amid coronavirus volatility. Regular dividend payments should also enhance shareholders’ value in this critical scenario.

Analysts’ recommendations

Among the 25 analysts covering NXP stock, 19 recommend a “buy,” while six recommend a “hold.” None of the analysts recommend a “sell.” After the lower-than-expected revenue guidance for the first quarter, many analysts slashed their target price on the stock.

  • Stifel lowered the target price to $90 from $109.
  • Piper Sandler lowered the target price to $125 from $145.
  • J.P. Morgan lowered the target price to $105 from $130.
  • Needham lowered the target price to $108 from $110.
  • Susquehanna lowered the target price to $100 from $125.

NXP stock has declined around 33.5% YTD as of April 7.

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