NXPI Dips 7% in a Month: Should You Stay Away From the Stock?
NXP Semiconductors NXPI shares have lost 7.3% in the past month, underperforming the broader Zacks Computer and Technology sector’s return of 0.8% and the Zacks Semi-Analog & Mixed industry’s decline of 2.7%.
The underperformance can be attributed to the weakness in the automotive end market due to high level inventory corrections among direct Tier 1 customers. Slowing momentum in the communications infrastructure end market due to broad-based inventory corrections also negatively impacted the performance.
NXPI reported second-quarter 2024 non-GAAP earnings of $3.20 per share, which was in line with the Zacks Consensus Estimate. The figure decreased 6.7% year over year. Revenues of $3.13 billion beat the Zacks Consensus Estimate by 0.04%. The figure declined 5% from the year-ago level.
NXP Semiconductors N.V. Price and Consensus
NXP Semiconductors N.V. price-consensus-chart | NXP Semiconductors N.V. Quote
NXPI’s Q3 Guidance Not So Rosy
For the third quarter of 2024, NXPI expects revenues between $3.15 billion and $3.35 billion, indicating a year-over-year decline of 5% at the midpoint but an increase of 4% sequentially.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $3.25 billion, suggesting a year-over-year decline of 5.32%.
NXPI expects the non-GAAP gross margin to be 58.5% (+/-50 bps). The non-GAAP operating margin is anticipated to be 35.1% at the midpoint.
NXP Semiconductors anticipates non-GAAP earnings per share between $3.21 and $3.63. The consensus mark for the same is pinned at $3.43 per share, down 4.5% over the past 60 days and suggests a 7.3% year-over-year decline.
Sluggish Automotive & Communication Hurt NXPI
NXP Semiconductors is facing significant challenges in two of its key markets — Automotive and Communication Infrastructure.
In the second half of 2024, NXPI expects the inventory digestion process at select direct Tier1 auto customers to extend, making its prospects in the automotive market bleak for 2024.
Weak demand for NXPI’s semiconductor products from EV car makers in China is expected to hurt top-line growth in 2024. Stringent export policies in China are acting as a major headwind.
For third-quarter 2024, Automotive revenues are expected to decline in the low single digits on a year-over-year basis. Communication Infrastructure and other is expected to decline in the mid-20% range on a year-over-year basis and mid-single digit sequentially.
NXPI’s solid traction across industrial & IoT and mobile end markets is a positive.
For the third quarter of 2024, NXPI expects revenues from Mobile to be up in the mid-single digits year over year and mid-teens sequentially.
Revenues from industrial IoT are expected to be up in the low single digits both on a year-over-year and quarter-over-quarter basis. Improvement in consumer IoT demand in China is negated by persistent weakness in the core industrial demand in Europe and the Americas.
Vanguard Joint Venture Bodes Well for NXPI
The formation of a 60:40 manufacturing joint venture between Vanguard International Semiconductor and NXPI is a noteworthy development. TSMC is Vanguard’s largest shareholder with whom NXPI already has partnerships in Europe and Singapore.
This new joint venture, VisionPower Semiconductor Manufacturing Company, will develop a 300 mm fab in Singapore. On being operational in 2029, the fab will produce 55,000 wafers per month in phase 1.
NXP Semiconductors is expected to invest $2.8 billion between 2024 and 2028, with the peak investment period being in 2025. This investment is expected to help NXPI generate $4 billion of incremental annual revenues.
NXPI Suffers From Stiff Competition
NXP Semiconductors is facing stiff competition from leading players in the semiconductor space, including Analog Devices ADI, Semtech SMTC and MACOM Technology Solutions MTSI.
Year to date, NXPI shares have returned 0.8%, underperforming ADI, SMTC and MTSI’s return of 13.8%, 111% and 15.2%, respectively.
NXP Semiconductors now expects 2024 revenues to decline in the low single-digit range. This doesn’t bode well for growth-oriented investors, as suggested by a Growth Score of D.
NXPI stock is also trading at a premium, as suggested by the Value Score of D.
NXPI carries a Zacks Rank #4 (Sell), which implies that investors should stay away from the stock at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Analog Devices, Inc. (ADI) : Free Stock Analysis Report
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