Chip manufacturer NXP Semiconductors (NASDAQ: NXPI) reported results ahead of analysts' expectations in Q2 FY2023, with revenue flat year on year at $3.3 billion. Guidance for next quarter's revenue was also $3.4 billion at the midpoint, 2.79% above analysts' estimates. NXP Semiconductors made a GAAP profit of $704 million, improving from its profit of $683 million in the same quarter last year.
Is now the time to buy NXP Semiconductors? Find out by accessing our full research report free of charge.
NXP Semiconductors (NXPI) Q2 FY2023 Highlights:
- Revenue: $3.3 billion vs analyst estimates of $3.21 billion (2.88% beat)
- EPS: $2.67 vs analyst estimates of $2.52 (5.76% beat)
- Revenue guidance for Q3 2023 is $3.4 billion at the midpoint, above analyst estimates of $3.31 billion
- Free cash flow of $556 million, up 45.9% from the previous quarter
- Inventory Days Outstanding: 135, up from 133 in the previous quarter
- Gross Margin (GAAP): 57%, in line with the same quarter last year
“NXP delivered quarterly revenue of $3.3 billion at the high end of guidance, with revenue trends in all our focus end-markets performing better than anticipated. Our first-half results and guidance for the third quarter underpin our confidence that NXP is successfully navigating through the cyclical downturn in our consumer-exposed businesses. At the same time, we see continued strength in our automotive, core-industrial and communications infrastructure businesses,” said Kurt Sievers, NXP President and Chief Executive Officer.
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.
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
NXP Semiconductors's revenue growth over the last three years has been mediocre, averaging 17.1% annually. But as you can see below, its revenue declined from $3.31 billion in the same quarter last year to $3.3 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Even though NXP Semiconductors surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 0.39% year on year. This could mean that the current downcycle is deepening.
NXP Semiconductors may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 1.31% next quarter, analysts are expecting revenue to grow 1.67% over the next 12 months.
In volatile times like these, we look for robust businesses with strong pricing power. Overlooked by most investors, this company is one of the highest-quality software companies in the world, and its software products have been the gold standard in critical industries for decades. The result is an impressive business that's up an incredible 18,000%+ since its IPO. You can find it on our platform for free.
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 135, which is 36 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 Q2 Results
Sporting a market capitalization of $55.4 billion, more than $3.86 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that NXP Semiconductors is attractively positioned to invest in growth.
It was good to see NXP Semiconductors's strong revenue and gross margin guidance for next quarter, which topped analysts' expectations. These beats were accomplished in the face of cyclical headwinds and softness in China. We were also glad that its revenue growth outperformed Wall Street's expectations, driven by strong demand across its segments (auto, core industrial, mobile, and communications infrastructure). Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 1% after reporting and currently trades at $213.08 per share.
So should you invest in NXP Semiconductors right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.
Looking for more investment opportunities? One way to find them is to watch for paradigm shifts, just like how every company in the world is slowly becoming a technology company and facing increasing cybersecurity risks. This company is leading the charge in cyber defense with its cloud-native cybersecurity solutions while generating best-in-class revenue growth and SaaS performance metrics. It should definitely be on your radar.
The author has no position in any of the stocks mentioned in this report.