NXP shares fall 7.3% after hours as quarterly growth slows from 8% to 2%
NXP forecasts fourth quarter revenue of $3.85bn, with quarterly growth slowing to 2% from 8%. Earnings per share are forecast at $4.36 against $4.31 expected. Management says buybacks will accelerate: the new $5bn authorisation and $1.3bn remaining total $6.3bn, about 10% of market value.
NXP Semiconductors fell 7.3% in after-hours trading on Tuesday, to $235.00 from Tuesday's $253.50 close, according to Google Finance at 7:36 pm ET. The quarter beat and the board added a $5bn buyback, yet holders sold.
The market sold the slope, not the level. Sequential growth, the rise from one quarter to the next, is guided to drop from 8% to 2%. The buyback is capacity to spend, not spending, and until it is spent the shares carry that slower pace.
The profit guide is not weak. The midpoint for non-GAAP earnings per share is $4.36, above the $4.31 consensus that Zacks put on the quarter before the report. Non-GAAP means profit with one-off items stripped out.
Revenue is the soft spot, and only slightly. The midpoint of $3.85bn sits 0.3% under the $3.86bn consensus. What falls is the pace, not the level.
The quarter itself was strong. According to NXP's results release, revenue was $3,786m, up 8% on the second quarter and 19% on a year earlier. Non-GAAP gross margin reached 58.6% and operating margin 37.1%.
Earnings per share were $4.20, against $3.61 in the second quarter. Free cash flow, the cash left after capital spending, was $1.21bn, or 31.9% of revenue. NXP returned $359m of it, 29.8%, as $256m in dividends and $103m in share buybacks.
Net financial leverage fell to 1.3 times from 1.8 times a year ago. That leaves room to buy back shares without strain.
Which businesses drive growth
Growth came from places the headlines skip. Cars supplied 38% of the $613m year-on-year revenue gain, while industrial and communications infrastructure supplied 65%. Automotive added $233m, industrial and IoT $223m, communications infrastructure and other $176m, and mobile took away $19m.
Automotive is 55% of sales yet grew 13%, slower than industrial (39%) and communications infrastructure (54%). It reached $2,070m, up 7% on the quarter. The CEO put the rise at 17% once the sold MEMS sensor business is removed from the year-ago base.
Industrial and IoT rose 6% on the quarter and 39% on the year. Communications infrastructure rose 11% and 54%. Cars still account for most sales; industrial and communications infrastructure drive more of the growth.
Mobile rose 17% on the quarter to $411m but is 4% lower than a year earlier. Zacks had reported NXP guiding it down at a mid single digit rate.
The forecast and capacity plans
The forecast points to slower growth. The midpoint implies 1.7% growth on the quarter, after 8.3% in the third. On the year it slides from 19% to 15%, or from 22% to 18% without the sold sensor business.
The low end of the range, $3.75bn, is a 1% sequential decline. That is the case the market priced in after hours.
Expectations were not low. Zacks has the shares up about 13.3% this year against 12.1% for the S&P 500. A guide that cuts the sequential rate to a quarter of its level has little room to please.
The conference call at 4:30 pm ET, inside the same after-hours window, gave the segment guide. Industrial and IoT is expected up in the high 20s percent on the year and low single digits on the quarter. Communications infrastructure is expected up more than 50% on the year.
Mobile is expected down in the mid teens on the year and up slightly on the quarter. So the growth engines stay industrial and communications infrastructure.
Margins keep rising. The guide lifts non-GAAP gross margin to 59.0% at the midpoint and operating margin to 37.5%. Management said revenue growth stays in double digits in 2027 and gross margin reaches 60% during 2027.
Spending rises to match. Capital spending is set to reach about 5% of revenue in 2027. NXP is adding back-end assembly and test capacity and building a Malaysia site due to produce in 2028.
VSMC, the joint venture with Vanguard, opened its first 300mm fab in Singapore on 28 September. The CFO ties both to margin expansion. NXP holds an Investor Day on 3 March in Boston to update its long-term financial model, and will realign its end market reporting from 2027.
Data centre is the line to watch. It sits across industrial and communications infrastructure, which are 21% and 13% of sales. The CEO expects data centre revenue to exceed the $500m outlook given earlier this year and to pass $1bn in a couple of years.
Demand signals point the same way. NXP planned a low single digit price decline for 2026. It now expects pricing to be neutral for the year, with about 1% from price in each of the third and fourth quarters.
The CFO said book-to-bill, orders against shipments, remains well above one in every end market. He described back-end capacity as very tight. That supports the 2027 growth claim.
NXP's own inventory is $2,596m, or 148 days of sales, down from 161 a year ago. About 13 days of that is deliberate pre-build ahead of a planned front-end factory consolidation. Channel inventory, the stock held by distributors, is 11 weeks, the same as in June and up from 9 a year ago.
Cash flow had a timing help. Payables and other liabilities added $196m to operating cash flow in the quarter, after a $136m drain in the second. That part of the $1.21bn can reverse.
Cash flow and the buyback test
The buyback will test whether NXP puts its cash to work. The board authorised $5bn in October, after the quarter ended, on top of $1.3bn remaining under the earlier programme: $6.3bn in all. Against a market value of about $64bn at the regular close, that is 9.9%, and the $5bn alone is 7.8%.
The total equals 5.2 quarters of free cash flow and 90% of net debt of $7.0bn. Spending so far has been smaller.
The $103m bought back in the third quarter includes tax withholding on employee share awards. Share-based compensation was $114m, so the line barely offsets dilution. The fourth quarter guide holds diluted shares at 253.8m, the same as the third quarter.
The CFO said NXP plans to accelerate buybacks in the fourth quarter and in 2027. He added that it will return all excess free cash flow over the long term. Until then, investors have a forecast of 2% quarterly growth to assess.
The first dated check is the 3 March Investor Day, which sets the 2027 model. The fourth quarter report then brings the new segment layout. A buyback line above the third quarter's $103m, with diluted shares below 253.8m, would show the $6.3bn is being put to work.
A line at or below $103m would show the authorisation is a headline. Fourth quarter revenue at or above $3.85bn would show the 2% guide was caution.