NXP Semiconductors Stock Research - Financhill

NXP Semiconductors Stock Research

NXP Stock Research: In a world that is connected through the Internet and smartphones, investing in a semiconductor company just makes sense.

Firms in this industry develop and manufacture the technology that keeps everything connected. From automobiles to mobile phones, industrial applications to the Internet of Things, semiconductors are in high demand.

This can make investing in semiconductor companies very profitable, when you choose the right one. Before you decide to buy shares in one of these firms, do your research and make sure you understand what makes the company unique.

What Does NXP Stand For?

NXP Semiconductors (NXPI) stands for Next Experience.

The company is based in the Netherlands and has been around for more than six decades. It employs more than 30,000 people in over 30 countries. Of those, around 9,000 are engineers. Together, they serve some 26,000 customers.

NXP’s primary focuses are:

  • automotive,
  • industrial,
  • mobile, and
  • communication infrastructure

The company is number one in car infotainment, in-vehicle networking, and secure car access. This is where NXP gets most of its business.

NXP Semiconductors also focuses on industrial applications. Together, these two divisions make up around 66% of the firm’s business.

The remaining 34% of operations is made up of infrastructure – like 5G technology and radio frequency (RF) products – and mobile services, such has mobile wallets.

Some of NXP’s key customers include Amazon, Apple, Bosch, Cisco, and Samsung. Its primary distributors for 2018 were Arrow, Edom, Vitec, and WPG.

The company’s products leverage its intellectual property with process technology and its own expertise in manufacturing to facilitate secure, high-speed designs that employ mixed-signal analog-digital (mixed A/D) or radio frequency (RF).

NXP dealt in Standard Product (SP) solutions until early 2017. Now, it concentrates on High Performance Mixed Signal (HPMS) solutions. However, this classification was removed from its organizational structure and documents effective January 2019.

It is just something to note if you are reading early analysis on the company. Further, note that NXP’s reportable segments from January 2019 going forward are automotive, industrial, mobile, and communication infrastructure.

Prior to this date, the company had the following four product lines: automotive, secure connected devices, secure identification solutions, and secure interfaces and infrastructure.

Reasons to be Bullish About NXP

NXP [NASDAQ: NXPI] serves a huge industry. The value of the semiconductor market weighed in at $469 billion for 2018 and it is growing exponentially as more people become connected.

The demand for devices and the replacement rate is also working together to fuel growth. This fact inherently gives NXP opportunities to grow if its innovation and quality keep pace.

One place NXP [NASDAQ: NXPI] shines is in power conversion and management. Its ultra-low power semiconductors have a myriad of uses within consumer, healthcare, and mobile technologies.

NXP products also tend to have strong RF abilities so industrial applications are well-supported as well as automobile security and other contactless identification needs.

Going forward, these strengths could help propel NXP to new heights. For instance, within the automotive industry, advanced driver assistance systems (ADAS) and infotainment systems are coming into increased demand.

There is also a demand for the products NXP makes behind the scenes. Powertrains are electrified in many electric and hybrid vehicles and there is a degree of networking that needs to happen within vehicles. This company is in an outstanding position to service these demands and well-respected enough to make it a reality.

Risk Factors and Challenges

NXP [NASDAQ: NXPI] became the automotive industry’s number one semiconductor supplier after it merged with Freescale. The acquisition took place at the end of 2015 and cost $11.8 billion in stock and cash.

Through this merger we have created an industry powerhouse focused on the high growth opportunities in the Smarter World, capitalizing on the emerging opportunities offered by the accelerating demand for connectivity, processing and security,” wrote Rick Clemmer, NXP Chief Executive Officer, in a press release announcing the merger.

Today’s formation of the new NXP is a transformative step on our journey to become the industry leader in high performance mixed signal solutions.”

The deal was expected to produce $500 in cost-saving synergies per year. At that rate, it would take almost 24 years to make good on the investment.

Obviously, acquisitions of this nature produce certain economies of scope in addition to economies of scale and this can produce added opportunities. The question is whether those efforts will come to fruition.

Further, Freescale is not the company’s only acquisition. In 2013, NXP bought Code Red Technologies. The year before, it bought Catena Holding.

Lately, NXP [NASDAQ: NXPI] sells as much has it buys. The company has been selling off some of its earlier investments.

In July 2018, the company sold its stake in Suzhou ASEN Semiconductors Co for $127 million. A month earlier, NXP sold 24% of its position in WeEn and is intending the sell the rest of its holding.

In April 2017, the company sold its stake in Advanced Semiconductor Manufacturing Corporation for $54 million. The company’s Standard Products (SP) business went for $2.6 billion in February 2017.

In the end, any investor in this company has to ask themselves whether they think NXP can evolve and encompass these ever-changing bits of itself to create a true industry leader.

Bottom Line: Should You Buy NXP?

With acquisitions, mergers, and sales come a certain degree of internal flux – and it often takes some time for everything to run smoothly again.

NXP [NASDAQ: NXPI] is an old company with a strong portfolio, but it has recently gone through a series of change and not all companies handle that level of change well. – especially well-established ones.

Adding and divesting companies, products, people, conceptions of the company itself – these things do not come easily or, naturally.

Growing pains are to be expected. Like any investment, it takes time to recoup. The question is whether you believe NXP can start to foster organic growth and profitability within your investment horizon.

The company has undergone many changes and it may be too early to tell whether they have hurt the company from an operational standpoint or helped it grow.

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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.