Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 9.1% year on year to $3.11 billion. On the other hand, next quarter’s revenue guidance of $2.83 billion was less impressive, coming in 1.5% below analysts’ estimates. Its non-GAAP profit of $3.18 per share was 1.7% above analysts’ consensus estimates.
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NXP Semiconductors (NXPI) Q4 CY2024 Highlights:
- Revenue: $3.11 billion vs analyst estimates of $3.1 billion (9.1% year-on-year decline, in line)
- Adjusted EPS: $3.18 vs analyst estimates of $3.13 (1.7% beat)
- Adjusted EBITDA: $1.24 billion vs analyst estimates of $1.22 billion (39.9% margin, 1.9% beat)
- Revenue Guidance for Q1 CY2025 is $2.83 billion at the midpoint, below analyst estimates of $2.87 billion
- Adjusted EPS guidance for Q1 CY2025 is $2.59 at the midpoint, below analyst estimates of $2.64
- Operating Margin: 21.7%, down from 26.5% in the same quarter last year
- Free Cash Flow Margin: 9.4%, down from 28.1% in the same quarter last year
- Inventory Days Outstanding: 150, up from 147 in the previous quarter
- Market Capitalization: $53 billion
“NXP delivered full-year 2024 revenue of $12.61 billion, a decrease of 5 percent year-on-year. In the fourth quarter, revenue was $3.11 billion, a decrease of 9 percent year-on-year, modestly above the mid-point of our guidance range. In review, NXP delivered resilient results throughout 2024, reflecting solid execution, consistent gross margin, and healthy free cash flow generation despite a challenging market environment. We rigorously focus on managing what is in our control, to navigate a soft landing while executing our growth strategy,” 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 put up a good quarter or two, but many enduring ones grow for years. Over the last five years, NXP Semiconductors grew its sales at a mediocre 7.3% compounded annual growth rate. This was below our standard for the semiconductor sector and is a poor baseline 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 history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.3% annually. 
This quarter, NXP Semiconductors reported a rather uninspiring 9.1% year-on-year revenue decline to $3.11 billion of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 9.6% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.
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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 150, which is 38 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 Q4 Results
It was encouraging to see NXP Semiconductors beat analysts’ EPS and EBITDA expectations this quarter. On the other hand, its revenue and EPS guidance for next quarter missed. Overall, this was a mixed quarter. The stock traded up 1.2% to $207 immediately after reporting.
So should you invest in NXP Semiconductors right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
