NXPI slides to six month low following results

NXP Semiconductors (NXPI) reported Q3 earnings of $3.45 per share, slightly exceeding analyst expectations of $3.43, and revenue of $3.25 billion, in line with the consensus. While earnings saw a modest beat, the 5.4% year-over-year revenue decline reflects ongoing challenges in some of NXPI’s key markets.

NXPI’s Q4 guidance fell short of expectations, with projected EPS between $2.93 and $3.33, compared to the analyst consensus of $3.63. Revenue guidance for Q4 was set at $3.0-$3.2 billion, below the expected $3.36 billion. Management attributed the weak outlook to broad macroeconomic headwinds, particularly in Europe and the Americas, as well as specific challenges in the Industrial and IoT markets.

The Automotive segment, which accounts for more than half of NXPI’s revenue, reported a 3% year-over-year decline despite a 6% sequential improvement. Key drivers in automotive include content gains in radar systems, battery management systems (BMS), and zonal processors. However, the segment remains pressured by slower-than-expected electric vehicle (EV) demand and competitive challenges in the global automotive landscape.

The Industrial and IoT segment showed considerable weakness, with a 9% sequential and 7% annual decline, significantly missing internal forecasts. NXPI cited broader macro challenges, especially in Europe and the U.S., where industrial demand remains sluggish. This segment’s underperformance has been a substantial drag on NXPI’s overall growth and outlook.

NXPI’s gross margin stood at 58.2%, slightly below last year’s 58.5%, while the adjusted operating margin came in at 35.5%, up from 35% in the previous year, showing some resilience in profitability despite revenue challenges. Capital expenditure was down 7% year-over-year at $186 million, reflecting NXPI’s careful approach to capital deployment amid uncertain market conditions.

Inventory levels rose to $2.23 billion, up 4.4% year-over-year, with channel inventory increasing to 1.9 months from 1.7 months last quarter, indicating some build-up in the supply chain. Adjusted free cash flow was $593 million, marking a 25% year-over-year decline, likely impacted by the softer demand environment and inventory adjustments.

NXPI’s stock traded down as much as 7.1% in after-hours trading following the earnings release, reflecting investor disappointment with the Q4 guidance and the impact of industrial weakness on growth prospects. Year-to-date, the stock has underperformed its semiconductor peers, trading at 14x projected CY26 EPS, compared to the sector average of 23x, which may present an attractive entry point for long-term investors if growth prospects stabilize.

NXPI’s management remains cautious about the near-term outlook, emphasizing that automotive demand remains uncertain due to lower EV adoption rates and growing competition from China. The industrial sector’s recovery is expected to be gradual and is likely to depend on a broader macroeconomic improvement. Nonetheless, NXPI is optimistic about the long-term growth potential from content gains in automotive and 5G infrastructure, which could provide tailwinds as the semiconductor cycle eventually recovers.