NXP Semiconductors Stock Forecast - Financhill

NXP Semiconductors Stock Forecast

NXP Semiconductors Stock Forecast:  Not very long ago, internet access was limited to desktop computers with a dial-up connection. Today, mobile devices give users the opportunity to login anytime, from anywhere.

Smartphones and tablets make it possible to conduct basic transactions like pay bills, buy groceries, and schedule appointments instantly. There is no need to make a call or visit a retailer to get these tasks done.

While many users are still astonished by the capabilities of mobile devices, this is just a small taste of what the future holds. Already, homes and cars are being connected to the web, along with fitness trackers, wearable technology, and a long list of other products. Collectively, these items are referred to as the Internet of Things (IoT), and the potential is nothing short of astounding.

Many investors are anxious to stockpile shares of the companies that will lead this technology, because it appears that growth prospects are virtually unlimited. The big question is, which company is most likely to play a sizable role in the IoT expansion?

What are the Benefits of IoT? 

As internet-enabled IoT devices become more common, they are transforming data collection, tracking usage, automating systems and processes, and monitoring functionality. These tasks are completed automatically – and they are silently running in the background while users go about their daily activities.

Already, smart doorbells text homeowners when someone approaches, and smart security systems give updates when there is movement in the area being monitored.

Lights and thermostats have been a part of IoT for quite some time, and smart appliances are changing the way people manage food purchasing and preparation. Amazon’s Alexa boasts 90,000-plus skills, and more than 100,000 million Alexa-enabled devices have shipped.

The Amazon Echo Smart Speaker can now be found in millions of homes worldwide.

In the no-so-distant future, smart traffic signals will monitor traffic flow and automatically adjust to prevent gridlock.

Medical equipment will make it easier and more accurate to manage chronic conditions from home.

Even cars will get smarter at identifying needed maintenance and repairs, preventing collisions, and keeping drivers in compliance with traffic regulations. Several companies are working on self-driving vehicles, which rely on internet connections to successfully communicate with navigation systems and safety features.

Perhaps the most exciting outcome of IoT data collection will be new insights from artificial intelligence. Exposure to vast data sets enables machine learning, and eventually AI will be able to identify and communicate patterns that simply aren’t visible in the limited amount of information a person can process.

Current projections indicate that there will be at least 20 billion IoT devices by 2020, and sales of smart equipment are growing by leaps and bounds.

In 2009, the IoT market was just $18 billion. That figure will top $1.71 trillion in 2019. NXP Semiconductors is a company getting a lot of investor attention, because it has an important part to play in the future of IoT.

NXP Semiconductors Business Model 

NXP Semiconductors’ future is directly correlated to the future of the Internet of Things.

The security of every “thing” or smart device relies on a sophisticated microchip that connects it to the internet remotely – even when the device is low-energy. Semiconductors are a critical component of those chips, and over its long history, NXP Semiconductors [NASDAQ: NXPI] has developed expertise in this area.

Specifically, the company has some of the most advanced radio frequency ID chips, sensors, power management chips, and microcontrollers available in the market today.

In addition, it offers something of a do-it-yourself kit for developers called the Rapid IoT Prototyping Kit. This tool allows developers and designers to create smart capabilities in any device that is capable of connecting to a network.

Most analysts agree that NXP Semiconductors [NASDAQ: NXPI] is on the cutting edge of smart car technology, and the company is rapidly increasing its capabilities for the applications of the future.

NXP is expected to make transformative contributions to the development of smart factories and even smart cities. With that in mind, is NXP Semiconductors stock a buy?

NXP Semiconductors Stock Forecast

Companies that develop and manufacture ever-more-advanced microchips like NXP Semiconductors are poised for growth as the IoT market expands exponentially in coming years.

From an investment perspective, NXP Semiconductors [NASDAQ: NXPI] appears to be a buy at first glance – but do the financials support investing right now?

NXP sales come from several markets within the larger sector. These include communications, automotive, Internet of Things, industrial, and mobile devices.

The company reported strong growth in some areas, with lagging sales in others. Ultimately, the consensus is that the highs and lows balance out to respectable overall results for the second quarter.

Total revenues came in at $2.22 billion, which represents a 6 percent increase year over year. This figure is in line with guidance given by business leaders. Unadjusted operating income exceeded the guidance range, coming in at $157 million versus the predicted $150 million. GAAP earnings per share totaled $0.14 versus last years ($0.07).

Automotive Chip Sales

It is easier to see which areas of the business are growing when figures are broken down by business line. For example, automotive chip sales were down by 10 percent at $1.03 billion.

This is due, in part, to lower car production in major markets.

Internet of Things Segment Performance

Revenues for the chips used in industrial and Internet of Things applications dropped as well, down 14 percent to a total of $390 million.

This decline is credited to the difficulties NXP Semiconductors [NASDAQ: NXPI] faces when it comes to finding buyers while trade tensions are high between the United States and China.

Mobile Sales

On the plus side, mobile sales increased substantially. They rose 25 percent year over year to a total of $297 million.

This is attributed to large orders from a Chinese smartphone maker that elected to incorporate NXP chips in handsets to support the mobile wallet feature.

Communications Infrastructure

Finally, sales in the area of communications infrastructure have also seen a big boost. In the second quarter they went up 19 percent to a total of $499 million.

NXP’s Massive MIMO solutions are popular for increasing the reach of wireless communications systems, and it works with the current 4G technology. More importantly, it can be upgraded to integrate 5G technology when appropriate, which promises to have a strong positive impact on sales.

NXP Growth Strategy

It’s true that most people who want a smartphone or other smart mobile device have made the purchase already, so NXP’s future isn’t in outfitting new phones with chips. Fortunately, business leaders are fully prepared with an actionable strategy.

Instead of trying to increase the number of devices, it is aiming for greater adoption of mobile wallet applications among current users.

Based on NXP research, only 30 percent of the population currently takes advantage of mobile wallet functionality, and NXP is focused on growing that adoption rate to 50 percent by 2021.

NXP Semiconductors has a sound go-forward strategy, but analysts are still predicting revenue will decline in coming months. Revenues are expected to fall by 8 percent year over year, totaling approximately $2.24 billion.

Operating income is estimated at $180 million, which is down from $2.2 billion.

NXP Stock Forecast: The Bottom Line

Overall, NXP Semiconductors [NASDAQ: NXPI] started off at a rapid rate of growth that was ultimately unsustainable. In the past five years, total revenues went up just 12.3 percent.

The company is generating substantial free cash flow, approximately $3 billion, which could be reinvested in IoT products. If business leaders choose investments wisely, there is solid potential for strong future growth.

Today’s investors are unlikely to see short-term rewards, but those willing to buy and hold could realize a significant increase in value. The current stock price is relatively low, but there are many indications that it will grow in coming years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.