NXP Semiconductors (NASDAQ:NXPI) Reports Q1 In Line With Expectations But Stock Drops
April 28, 2025
Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 9.3% year on year to $2.84 billion. The company expects next quarter’s revenue to be around $2.9 billion, coming in 1.1% above analysts’ estimates. Its non-GAAP profit of $2.64 per share was 1.4% above analysts’ consensus estimates.
EINDHOVEN, The Netherlands, April 28, 2025 (GLOBE NEWSWIRE) -- NXP Semiconductors N.V. (NASDAQ: NXPI) today reported financial results for the first quarter, which ended March 30, 2025. “NXP delivered quarterly revenue of $2.84 billion, in-line with the midpoint of guidance. NXP's first-quarter results and guidance for the second quarter underpin a cautious optimism that NXP continues to effectively navigate through a challenging set of market conditions. We are operating in a very uncertain environment influenced by tariffs with volatile direct and indirect effects. Considering these external factors, we are redoubling our efforts to manage what is in our direct control, enabling NXP to drive solid profitability and earnings,” said Kurt Sievers, NXP President and Chief Executive Officer.
Company Overview
Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.
Analog Semiconductors
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, NXP Semiconductors grew its sales at a mediocre 7% compounded annual growth rate. This fell short of our benchmark for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. NXP Semiconductors’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.3% annually.
This quarter, NXP Semiconductors reported a rather uninspiring 9.3% year-on-year revenue decline to $2.84 billion of revenue, in line with Wall Street’s estimates. Despite meeting estimates, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 7.3% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 1.3% over the next 12 months. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, NXP Semiconductors’s DIO came in at 168, which is 53 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.
Key Takeaways from NXP Semiconductors’s Q1 Results
It was good to see NXP Semiconductors narrowly top analysts’ adjusted operating income expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased and next quarter's EPS guidance was just in line, seemingly not enough to excite the market. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives, and the stock traded down 8.1% to $180.70 immediately following the results.
