NXP 2Q25: slowly getting out of the hole
The stock is not cheap
Bold statement by Management: early stage of cyclical recovery, new upcycle beginning. That’s a bit aggressive. 2Q result and 3Q guidance show a smaller pace of YoY decline, converging slowly to 0. YoY growth by early 2026?
Other than mentioning an increasing order book, Management was not forthcoming on details of this “upcycle”. This said, in Automotive NXP has outperformed its peers during this latest downcycle with a smaller pace of decline. The argument of a more competitive product mix has some merits.
Inventory levels are still very high. There is a possible argument that 2-3Q revenues would have been higher without the Auto Tier-1 inventory burn.
Management is less concerned by import tariffs (“current impact of current tariffs is immaterial”) than last quarter.
Management is still confident in their 3-year target (ie 2027) of 8-12% revenue Cagr for both Auto and Industrial, even though 2025 will be below target. Consensus is inline with the 3-yr guidance. ~10% revenue growth turns into ~18% EPS growth in 2026 and 27.
Stock valuations at 20x 2025 EPS, 16.8x 2026 EPS, which are almost +1 standard deviation above average PEx. No room for error here.
Insanely long presentation here, maybe NXP wants to compete with Infineon on the page count.
If you’ve never seen the Semi industry’s spiel on “secular growth forever” in Automotive and Industrial: have a look. The arguments are not wrong: Automotive Automation (ADAS) requires a lot of semiconductors, EV need 3x or 4x more semiconductors than combustion engine cars, of course AI will drive your car soon = even more semiconductors. Industrial Automation, again means more chips etc etc. But:
1. These expectations were very inflated 5 years ago (read my report here)
2. Big secular trends do not prevent or mitigate bad cyclical problems (read my report here)
Back to that question: are we past the bottom of the bad cyclical contraction of the Auto & Industrial Semi industry?
If you read my posts – thank you.
If you wonder where I don’t have a paywall: news comments, industry comments, posts based on public news.
Where there is a paywall: company results, financials, forecasts, valuations. There is a paywall below.