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NXP Semiconductors NV Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Revenue and non-GAAP gross profit were both modestly above the midpoint of guidance range, while operating expenses were in line with the midpoint of guidance.
- The company is focused on multi-gigabit automotive connectivity technology based on the ASA-MLE standard, which is ideally suited for asymmetric point-to-point connectivity of ADAS sensors and IVI display applications.
- The company expects Aviva to enhance and complement its broad automotive networking business, beginning in 2027.
- The company is helped by its low channel inventory, as it does not have to reduce it further, and any possible light at the end of the tunnel in terms of end demand directly comes to the company.
- The company's ending cash balance was $3.29 billion, up $144 million sequentially due to the cumulative effect of additional liquidity, capital returns, CapEx investments, and cash generation during Q4.
- Total revenue was $3.11 billion in Q4, down 9% YoY.
- The company had a lot of turns business and customers placed their orders very late due to low order lead times, resulting in limited visibility.
- The company continues to make the intentional choice to control the increase of channel inventory due to uncertain demand environment.
- The company modeled with a flat to slightly down car production for the year.
- Automotive revenue was $7.15 billion in 2024, down 4% YoY, due to declining automotive production in Europe and Japan, exacerbated by inventory digestion at Western Tier 1 customers in an uncertain automotive demand environment.
- Revenue for Q1 is expected to be $2.825 billion, plus or minus about $100 million.
- The non-GAAP tax rate is expected to be 17.5% of profit before tax.
- The company expects stock-based compensation to be $128 million.
- The company expects to decrease inventory dollars in both the direct and the distribution channels, reflecting under-shipment against true end demand.
- The company expects to be within the financial model for gross margins.
Q&A Highlights from NXP Semiconductors NV Earnings Call Q4 2024
- Analyst asked about the inventory situation at North American customers versus three months ago and if it is coming to a bottom with an inflection from that point forward.
- Kurt Sievers, CEO of NXP Semiconductors, explained that the inventory situation in North America has improved somewhat, but it is still weak compared to other regions, especially Asia. The company is continuing to digest on-hand inventory at direct Tier 1 customers, both in the US and Europe, which is weighing on their revenue performance, especially in automotive. However, they have also seen some early strength in Asia for industrial/IoT and auto, which is a positive sign.
- Kurt Sievers, CEO of NXP Semiconductors, explained that the inventory situation in North America has improved somewhat, but it is still weak compared to other regions, especially Asia. The company is continuing to digest on-hand inventory at direct Tier 1 customers, both in the US and Europe, which is weighing on their revenue performance, especially in automotive. However, they have also seen some early strength in Asia for industrial/IoT and auto, which is a positive sign.
- Analyst asked about the company's decision-making process regarding internal utilization and when they make the call to reduce it if demand isn't coming back.
- Bill Betz, CFO of NXP Semiconductors, explained that the company is focused on what they control and balancing their internal inventory from a dollar perspective. They are also adjusting their foundry and subcon orders with current revenue levels. The company is being cautious and taking it one quarter at a time, but if the second half comes up and they are planned and ready for that, they may increase their utilization.
- Bill Betz, CFO of NXP Semiconductors, explained that the company is focused on what they control and balancing their internal inventory from a dollar perspective. They are also adjusting their foundry and subcon orders with current revenue levels. The company is being cautious and taking it one quarter at a time, but if the second half comes up and they are planned and ready for that, they may increase their utilization.
- Analyst asked about the end-of-life process for the comms business and other and whether it is behind them or still ongoing.
- Kurt Sievers explained that the end-of-life process for the comms business and other is still ongoing and is expected to continue beyond Q1. He also provided a breakdown of the business, with 50% in the secure card area, including RFID, 20% in the radio power for mobile base station networks, and 30% in the digital networking business.
- Kurt Sievers explained that the end-of-life process for the comms business and other is still ongoing and is expected to continue beyond Q1. He also provided a breakdown of the business, with 50% in the secure card area, including RFID, 20% in the radio power for mobile base station networks, and 30% in the digital networking business.
- Analyst asked about customer behavior and the evolving landscape in the automotive segment, specifically regarding tariffs and the impact on NXP's thinking for 2025.
- Kurt Sievers clarified that the impact of tariffs and other factors on the automotive segment is still uncertain and that it is not reflected in NXP's guidance for 2025. He also provided examples of how NXP is not directly impacted by tariffs imposed on Canada and Mexico, as they do not ship from those countries to the US. However, he acknowledged that China's tariffs could potentially impact NXP's production and shipments from Tianjin, but he emphasized that the impact would be immaterial.
- Kurt Sievers clarified that the impact of tariffs and other factors on the automotive segment is still uncertain and that it is not reflected in NXP's guidance for 2025. He also provided examples of how NXP is not directly impacted by tariffs imposed on Canada and Mexico, as they do not ship from those countries to the US. However, he acknowledged that China's tariffs could potentially impact NXP's production and shipments from Tianjin, but he emphasized that the impact would be immaterial.
- Analyst asked about the impact of a hypothetical scenario of sales down in the high-single digits in 2023 on gross margins and OpEx.
- Without knowing all the different movements and visibility, the best metric for modeling purposes is to go back to the historical data and use that as a reference.
- Without knowing all the different movements and visibility, the best metric for modeling purposes is to go back to the historical data and use that as a reference.
- Analyst asked about the company's ability to reach its gross margin target range for the full year, given the expected results for the first half.
- The company never guided the full year and said it would stay within the financial model for gross margins within the target range.
- The company never guided the full year and said it would stay within the financial model for gross margins within the target range.
- Analyst asked about the percentage of orders coming from turns and how it differs across different segments.
- The company does not disclose this information. However, the turn has picked up over the last three quarters and is getting larger and larger.
- The company does not disclose this information. However, the turn has picked up over the last three quarters and is getting larger and larger.
- Analyst asked about the global SAAR or global unit production expectations for the year, specifically for the automotive business.
- The company expects car production to be around 89 million units in 2024, which would be a slight flat minus, with China having a flat plus and Europe and the US having a flat minus. The company models with a flat to slightly down car production for the year, but the delta between what the core business does and what the accelerated growth drivers do holds, as they all have about the same inventory level. The company expects all three of the accelerated growth drivers to grow from an absolute perspective year-on-year while the total auto business was down last year.
- The company expects car production to be around 89 million units in 2024, which would be a slight flat minus, with China having a flat plus and Europe and the US having a flat minus. The company models with a flat to slightly down car production for the year, but the delta between what the core business does and what the accelerated growth drivers do holds, as they all have about the same inventory level. The company expects all three of the accelerated growth drivers to grow from an absolute perspective year-on-year while the total auto business was down last year.
- Analyst asked about the sustainability of NXP's strength in China and the steps the company is taking to ensure that customers are not building inventory or over-shipping to that region.
- Kurt Sievers, CEO of NXP, stated that the company has zero indication of any inventory build or pull-in in China, and that the growth in China is natural and structurally expected to continue. He also mentioned that China's electric vehicle penetration is fast-paced, and that the company is dealing with it aggressively to be the right partner and stay competitive. He mentioned that the company has changed its organization and has a business leader for China who reports directly to him, and that they have a manufacturing strategy, China for China, to stay competitive.
- Kurt Sievers, CEO of NXP, stated that the company has zero indication of any inventory build or pull-in in China, and that the growth in China is natural and structurally expected to continue. He also mentioned that China's electric vehicle penetration is fast-paced, and that the company is dealing with it aggressively to be the right partner and stay competitive. He mentioned that the company has changed its organization and has a business leader for China who reports directly to him, and that they have a manufacturing strategy, China for China, to stay competitive.
- Analyst asked about how NXP's conversations with OEM customers have changed with the acquisition of TTTech Auto, and if there is any element of competition with customers.
- Kurt Sievers, CEO of NXP, stated that the acquisition of TTTech Auto enables the company to have conversations and engagement with automotive OEMs, and that it fills an important gap in software capabilities. He mentioned that the company is moving up the value stick, and that the acquisition is a building block to co-architect platforms with OEMs. He emphasized that the company is not competing with its direct customers, but rather moving up the value chain.
- Kurt Sievers, CEO of NXP, stated that the acquisition of TTTech Auto enables the company to have conversations and engagement with automotive OEMs, and that it fills an important gap in software capabilities. He mentioned that the company is moving up the value stick, and that the acquisition is a building block to co-architect platforms with OEMs. He emphasized that the company is not competing with its direct customers, but rather moving up the value chain.
