NXP Q3 2022 Revenues Better Than Expected; Automotive, Mobile Segments Shine

Study of counterpoints

  • NXP’s Q3 2022 revenue was $20 million higher than the midpoint of the company’s previous guidance. The automotive, mobile and communications infrastructure segments performed better than expected. But the consumer-facing IoT and Android mobile device segments experienced weakness.
  • NCNR orders continued to exceed NXP’s 2023 delivery capacity.
  • For the fourth quarter, the company expects revenue of approximately $3.3 billion (± $100 million). This would represent an increase of 9% year-on-year with a 4% decline sequentially. Non-GAAP gross margin is expected to be 57.8% (± 50 bp) and operating expenses are close to $720 million (± $10 million).

NXP reported third-quarter 2022 revenue of $3.45 billion, up 20.4% year-over-year and 4% quarter-over-quarter, and $20 million more than the midpoint of the company’s previous guidance. NXP’s automotive, mobile and communications infrastructure segments performed well compared to the second quarter, while the industrial and IoT segment struggled. Specifically, the consumer-facing IoT business, which accounts for nearly 40% of revenue, saw weaker sales in the channel. However, demand from automotive and key industrial customers remained resilient, supported by accelerated growth drivers. Due to higher plant utilization and sales, non-GAAP gross profit was nearly $2 billion and margin was 58%, up 150 basis points from the prior year.

NXP Revenue by Segment, Q3 2022 Counterpoint Research

Sources: Company, Counterpoint

Car

  • NXP’s strong suit, the automotive segment, accounted for 52.4% of total revenue in the third quarter and reached $1.8 billion. This was 24% YoY and 5% QoQ. Auto demand for silicon content remains strong as EV adoption increases and autonomy efforts increase. The third quarter saw strong growth in advanced analog, automotive processing and radar solutions. However, there was a shortage of microcontrollers and analog products in the automotive industry due to supply constraints. NCNR’s order book in this segment continued to outpace the company’s delivery capacity, which will remain “sold out” next year as well.
  • The company also announced a collaboration and product launch in the third quarter. NXP S32 domain and zonal automotive processor family is gaining popularity among automakers as the preferred scalable platform for software-defined vehicles. A leading global automaker has selected S32 MCUs/processors for its upcoming fleet of vehicles starting in 2025. NXP released the second generation RFCMOS radar transceiver, TEF82xx, which replaces the market proven TEF810xx. This high-performance single-chip solution supports short-, medium-, and long-range radar applications, including cascade high-resolution imaging radar. Additionally, NXP has partnered with ChargePoint USA for collection solutions and has also incorporated its own proprietary payment solutions to ensure a seamless process for customers.
  • For Q4 revenue, NXP estimates this segment is in the teens and flat on a YoY and QoQ basis, respectively.
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Industry and IoT

  • Industrial and IoT segment revenue was $713 million, up 17.5% year-over-year on a flat QoQ basis and $32 million below the company’s guidance. Year-over-year growth was driven by demand for crossover processors, 32-bit AMR MCUs, point-of-sale security solutions and more. As mentioned earlier, the consumer-facing IoT business was greatly affected. There has been a global softening in the consumer IoT market since August, and China was hit hard. As NXP has significant channel exposure in China and serves thousands of customers through its distribution partners, revenue in this domain declined.
  • Going forward, NXP could ship more in the channel, but instead decided to limit channel inventory to 1.6 months (against the long-term target of 2.5 months) to prevent losses due to uncertain macro conditions. The company will carefully evaluate and follow the market requirements depending on the growing demand and refer it to other customers if necessary. For existing inventory, DIO increased for five consecutive days to 99 days, with further increases expected in the future.
  • The industrial and IoT segment is expected to be in negative territory in both YoY (low double digits) and QoQ (high teens) in the fourth quarter.
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Mobile

  • Mobile segment revenue was $410 million, up 19% year-over-year and $30 million more than expected. Despite weakness in the Android handset market, NXP posted better-than-expected revenue due to exposure to high-end handsets (which appear to be performing better) rather than low-end handsets, increasing the rate of additions to its secure mobile for the wallet. , advanced analog high-speed interfaces, eSIM connectivity and more.
  • As Ultra-Wideband (UWB) penetration begins to grow across verticals such as mobile, IoT, and automotive, the company will be able to accrue more revenue in the future through its UWB technology and mobile wallet solutions. UWB use cases in China are already seen as UWB functionality in phones (prototypes) such as Apple, Samsung and Xiaomi phones. These smartphone players have partnered with automakers to implement UWB-based solutions in cars to offer consumers secure in-car access. NXP expects four Chinese OEMs to offer the technology by the end of this year, with at least three more to follow in 2023. Costal uses NXP UWB technology for its digital key system used by a local company Nio.
  • The company expects the segment to be higher in the low single digits YoY and lower in the upper single digits QoQ in the fourth quarter.

Communication infrastructure and others

  • Communications infrastructure and “other” segment revenue was $518 million, slightly higher than reported. Annual and quarterly growth rates were 14% and 4%, respectively. The growth can be attributed to the demand for network edge equipment, RFID tagging solutions, mobile base stations and others.
  • NXP launched its new most powerful power BTS7202 RX Front End Modules (FEM) and BTS6403/6305 previous drivers for 5G array multiple-input-multiple-output (MIMO) power up to 20W per channel. These solutions complement its 32T32R active antenna systems and are designed using the company’s silicon germanium (SiGe) process. As 5G network coverage expands, higher capacity solutions are needed to ensure consistent network quality and reduced operating costs for MNOs. Newly announced devices can meet these requirements with higher power per channel and low power consumption.
  • For Q4, guidance appears positive, consistent with low-teens YoY and flat QoQ.
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Capex overview and inventory

  • According to the company, cash flow generation remains excellent. Cash flow from operations was $1.14 billion in the third quarter, compared to $819 in the second quarter. Net equity was 8.2% of revenue, or $281 million. Due to supply constraints and high demand (especially in the auto sector), internal use remained in the 1990s. More than 65% of the power was directed to IP’s proprietary mixed-signal, internally centered power.
  • Capital investments for this year have decreased from 10% to 8% due to delays in equipment deliveries. In 2023, it will be between 6% and 8%.
  • From a demand perspective, there is weakness in the consumer IoT and Android mobile markets, while the automotive and industrial core markets are seeing steady demand. On the supply side, the situation is the opposite, as the latter markets face supply constraints and are unable to meet genuine demand. On the other hand, in previous markets, oversupply in channels is prevented due to uncertain macro conditions.

Conclusion

NXP’s supply capabilities have improved over time, but key end markets such as automotive and industrial still face shortages. Predominantly weak macro conditions and the prolonged Chinese blockade will pose further obstacles to revenue recovery in consumer-oriented markets. However, the company is cautious and is trying to reduce costs by reducing its discretionary expenses, reducing incentive compensation and focusing on a rigorous approach to managing distribution channel inventory.

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