2024-06-05 08:57:33 ET
Summary
- NXP's revenue growth is expected to slow down in 2023 due to competition and market challenges in the MCU market, but is forecasted to recover in 2024 driven by automotive radar solutions and BMS.
- Meanwhile, the company has seen a notable surge in gross margin, surpassing initial forecasts and historical averages, attributed to improved factory utilization, higher revenues, and increased distributor sales.
- NXP has effectively reduced costs in China by using local foundries and passing savings to customers while maintaining a stable margin.
In our previous analysis of NXP Semiconductors N.V. ( NXPI ), we expected its revenue growth to slow down in 2023, attributing it not primarily to external factors like China's market dynamics, inflation, or supply chain issues, but mainly due to its exposure in the MCU market, facing tough competition and market growth headwinds. However, we expected its revenue growth to recover in 2024 positively (8,19%), driven by automotive radar solutions and BMS.
Following its latest earnings , we examined the company’s financial performance in this analysis. Despite flattish revenue growth TTM (0.04%), lower than our forecast and its historical average, there was a notable surge in the gross margin, reaching 57.1%, which surpassed our initial forecast of 51.7% and even exceeded the historical average. Furthermore, while the actual gross margin was 5.4% higher than our forecast, the company’s TTM EBIT Margin stood impressively at 28.4%, which was a 10.7% increase from our forecast of 17.7%. Similarly, the TTM net margin reached 21.2%, exceeding our forecast by 9.1%. However, the free cash flow margin (capex only) of 23.4% aligned closely with our projections and historical averages. Thus, we analyzed the factors contributing to these deviations and subsequently assessed the sustainability of the current margins....
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NXP Semiconductors: Strong Margins Make A Strong Buy