NXP Semiconductors N.V. Earnings - Q4 2025 Analysis & Highlights
NXP Semiconductors reported solid Q4 2025 results with revenue growth across all end markets and regions, driven by inventory normalization and accelerating demand in software-defined vehicles and physical AI applications. The company expects continued momentum into 2026 with all regions and end markets projected to grow year-over-year, while maintaining disciplined capital allocation and advancing its hybrid manufacturing strategy.
Key Financial Results
Q4 2025 revenue of $3.34 billion, representing 7% year-over-year growth and 5% sequential growth, exceeding guidance by $35 million.
Non-GAAP operating margin of approximately 35%, 40 basis points above the same period a year ago and in line with guidance midpoint.
Non-GAAP earnings per share of $3.35, $0.07 better than guidance.
Non-GAAP gross profit of $1.91 billion with 57.4% non-GAAP gross margin, slightly below guidance due to stronger-than-expected mobile revenue.
Non-GAAP operating profit of $1.15 billion with 34.6% operating margin, up 80 basis points sequentially.
Distribution inventory of 10 weeks, consistent with guidance, with disciplined channel management prioritizing sell-through of high-demand products.
Cash flow from operations of $891 million with non-GAAP free cash flow of $793 million, or 24% of revenue.
Business Segment Results
Automotive revenue of $7.1 billion for full year 2025, flat year-over-year due to slower inventory digestion in the first half, with second-half performance aligning with 8% to 12% long-term growth outlook.
Industrial & IoT revenue of $2.3 billion for full year 2025, flat year-over-year, with second-half growth materially above the 8% to 12% long-term growth outlook across both core industrial and consumer IoT.
Mobile business revenue of $1.6 billion in 2025, up 6% year-over-year, with stronger demand and content gains in the premium mobile market.
Communications infrastructure revenue of $1.3 billion, down 24% year-over-year, with secure card business offsetting declines in digital networking and RF power.
Q1 2026 Automotive expected to be up in the mid-single digit versus Q1 2025 and down in the mid-single digit percent range versus Q4 2025, with approximately $25 million or one month of revenue contribution from the MEMS sensor business.
Q1 2026 Industrial & IoT expected to be up in the low 20% range year-on-year and down in the mid-single digit range versus Q4 2025.
Q1 2026 Mobile expected to be up in the mid-teen percent range year-on-year and down in the 20% range on a sequential basis.
Q1 2026 Communication infrastructure & other expected to be up in the mid-teen percent range versus Q1 2025 and up 10% versus Q4 2025.
Capital Allocation
Q4 2025 returned $338 million through buybacks and $254 million in dividends.
Over the last 10 years, returned over $23 billion to shareholders, representing 95% of free cash flow, while reducing diluted share count by 27%.
Repurchased an additional $36 million under 10b5-1 program after Q4.
Redeemed $500 million March 2026 notes with cash on hand on January 5.
Net debt of $8.96 billion with net debt to adjusted EBITDA of 1.9 times and adjusted EBITDA interest coverage ratio of 14.7 times.
Invested $195 million in long-term capacity access fees, $282 million equity payment to VSMC, and $44 million equity payment to ESMC in Q4.
Approximately 50% through investment cycle for both VSMC and ESMC, having invested about $1.7 billion of the $3.4 billion planned investments, with majority of remaining investments expected in 2026.
Q1 2026 expected capital expenditures of approximately 3% of revenue, $190 million capacity access fee payment, and $210 million equity investment into VSMC.
Committed to capital allocation framework: invest for growth, pursue targeted M&A to strengthen portfolio, and return excess cash through dividends and buybacks within long-term model.
Industry Trends and Dynamics
All regions were up on a year-on-year basis in Q4 2025.
All end markets performing either in line or better than expected in Q4 2025.
Inventory digestion largely behind the company, with Q4 auto revenue returning to year-on-year growth and finishing within 1% of its prior peak in 2023.
Strong customer engagements in emerging market for physical AI, combining industry-leading i.MX family of industrial application processors with recently acquired Kinara NPU to deliver complete and scalable AI platforms.
Software-defined vehicle platform initiatives underway at most auto OEMs, with strong global adoption of NXP products including S32N family of 5-nanometer vehicle compute processors and S32K family of 60-nanometer zonal processors.
Backlog, distribution backlog, and customer escalations have increased, with short-term orders continuing to increase.
No material impact from Nexperia supply disruptions, though memory supply discussions ongoing across end markets without reflected impact on customer orders to date.
Competitive Landscape
NXP remains a specialty supplier in the mobile market with a unique and defensible franchise centered on secured mobile transactions.
Unique and defensible competitive nature of complete system portfolio supporting physical AI and intelligent systems at the edge.
Strong design win rates for software-defined vehicle products across global auto OEMs, with early conversations from recently acquired TTTech Auto and Aviva Links accelerating interest in NXP's SDV portfolio.
Differentiated product portfolio in Industrial & IoT driving strong design wins with notable traction in healthcare, smart glasses, factory automation, and energy storage.
Macroeconomic Environment
Forward-looking statements involve risks and uncertainties that could cause results to differ materially, including macroeconomic impact on specific end markets.
Low-single digit price declines modeled across the business, with VPA pricing largely completed and reflected in Q1 guidance.
China EV incentive expiry not expected to negatively impact outlook, with quality and resilience regulations viewed as tailwind for NXP design wins in 2026.
SAAR expected to be flattish year-on-year in 2026 at approximately 92.6 million cars, with good acceleration of EVs and market share gains of Chinese OEMs.
Growth Opportunities and Strategies
Software-defined vehicles representing material and global growth opportunity, with TTTech Auto acquisition accelerating path to delivering SONUS architecture and systems by end of year.
Physical AI at the edge as key growth driver, with applications in medical imaging, camera-based workplace safety, logistics automation, and robotics.
Kinara NPU combined with i.MX family enabling complete and scalable AI platforms with exceptionally strong customer interest.
Automotive Ethernet products continuing to see strong adoption as part of SDV initiatives.
Data center exposure growing nicely within Industrial segment, including processors for data center infrastructure, power supplies, NIC cards, cooling systems, and security functions.
Secure card business and UCODE RFID tagging solutions expected to offset declines in digital networking and RF power over longer term.
Redirecting R&D resources away from RF power business to accelerate and enhance strategic priorities toward software-defined vehicles and physical AI.
Strategic Portfolio Actions
Divested MEMS sensor business to STMicroelectronics for $900 million in gross proceeds with another $50 million to be received upon completion of certain closing conditions.
Recognized onetime gain of approximately $630 million from sale of MEMS sensor business, reflected in Q1 2026 GAAP guidance.
Discontinued RF power business with approximately $90 million restructuring charge reflected in Q4 GAAP results, representing about 25% of communications infrastructure revenue in 2025.
Shifted geographic revenue reporting from ship-to basis to headquarter-based region to better reflect how company manages business internally and where customer engagements and design wins occur.
Financial Guidance and Outlook
Q1 2026 revenue guidance of $3.15 billion, plus or minus $100 million, up 11% year-on-year and down 6% sequentially, better than view 90 days ago.
Q1 2026 non-GAAP gross margin of 57%, plus or minus 50 basis points.
Q1 2026 operating expenses of $765 million, plus or minus $10 million, resulting in non-GAAP operating margin of 32.7% at midpoint.
Q1 2026 non-GAAP financial expense of approximately $92 million and non-GAAP tax rate of 18%.
Q1 2026 non-GAAP earnings per share of $2.97 at midpoint.
Company-specific secular drivers now outweighing broader industry cyclical headwinds, with expectations for these trends to continue throughout 2026.
Confident NXP will operate within its long-term financial model for the full year of 2026 based on positive trends including current order rates and business signals.
Long-term financial model intact with 6% to 10% revenue CAGR and 8% to 12% growth for Automotive and Industrial & IoT segments.
Gross margin expansion of approximately 100 basis points for every $1 billion of revenue on a full-year basis, with additional 200 basis points expansion expected at company level when VSMC is fully loaded in 2028.
Operating expense model of 23% of revenue on a long-term basis, though with seasonal variations with first half normally higher than second half.
Expected to move to long-term target of 11 weeks distribution inventory in 2026 from Q4 2025 level of 10 weeks.
Working capital efficiency, particularly days of inventory including prebuilds, expected to meaningfully improve throughout 2026 as revenue growth accelerates.
Prebuilds expected to be about 15 to 20 days by end of 2026 compared to 7 days at end of 2025.
