NXP Semiconductors Downbeat but Stock Still Compelling

NXP Semiconductors (NASDAQ:NXPI) pulled back from the $90+ range after reporting revenue falling 2% Y/Y to $2.4 billion. EPS of $0.94, non-GAAP FCF of $3.76 billion and non-GAAP gross margin of 53.1% are all strong figures. Though Q4 revenue growth of 5% is slow for auto and secure connected devices, this is expected.

As business picks up in 2019, patient investors could accumulate NXPI stock in the near-term. The stock dividend yield is not compelling at 1.14% but management continues to maximize shareholder return. It spent $5.08 billion on share repurchases and dividend payments. Share count fell 15% to 52 million shares.

On its conference call, management pointed to a deceleration in domestic demand in China. This had a negative impact on NXP’s distribution partners as weak demand slowed its growth. European automotive market headwinds are due to near-term uncertainties of the U.K. Brexit. And the mobile business is worse seasonally than the company expected.

NXP will not suffer as much as other smartphone suppliers this year because it has secure automotive products to count on. ADAS makes up 10% of the business and will grow in the 25% - 30% range even in the current, slower, environment.
Forecast for Q1/2019

NXPI anticipates revenue falling 10% to 16% sequentially (Q1). This is consistent with last year’s sequential decline. The slowing business, which hurt the stock price, benefits the company’s share buyback plan. As mentioned in Oct. 2018, it bought back 5 million shares at a cost of $424 million (average price: $84.80). It bought back another $481 million for 2019.

Disclosure: Author owns shares of NXPI stock.