NXP Semiconductors Rises on Revenue Beat in 3rd Quarter

NXP Semiconductors NV ( NXPI ) said third-quarter revenues increased 8% from the prior quarter despite decreasing 3% year over year.

The Dutch semiconductor company reported net revenues of $2.39 billion, outperforming analyst expectations by approximately $0.1 billion. NXP reported segment revenue growth in all of its business groups except the secure identification solutions group.

Brief summary of earnings

NXP’s secure interface and infrastructure group reported a 20% revenue increase from the prior-year quarter, driven by high “demand for both mobile transaction and general purpose MCU products” according to management. The automotive and secure connected devices groups also reported revenue growth during the quarter, increasing 11% and 3% from respective figures from the prior-year quarter.

Company Chief Financial Officer Peter Kelly added NXP’s non-GAAP operating margin increased 2.8% from the margin in the prior-year quarter and 2.4% from the margin in the prior quarter. The company’s operating margin ranks higher than 91% of global competitors.

Company reports strong balance sheet

Kelly also mentioned NXP’s overall financial leverage (debt-to-EBITDA) improved to 1.1 due to “lower gross debt and cash generation during the quarter.” The company increased its cash holdings to $3.06 billion and its cash flow from operations to $643 million.

GuruFocus ranks NXP’s financial strength 6 out of 10, implying a strong business operation. NXP’s Piotroski F-score ranks 5, driven by positive returns on assets, lower leverage and higher gross margins.

NXP traded approximately $1.20 per share higher at market open Oct. 26 as the company reported good revenue growth and strong balance sheet metrics during the quarter.

Qualcomm merger might not occur until next year due to tight timetable

On Oct. 27, 2016, NXP and Qualcomm Inc. ( QCOM ) announced a definitive merger agreement under which Qualcomm River Holdings BV, a subsidiary of Qualcomm, will commence a tender offer to acquire all of NXP’s shares for $110 per share in cash. NXP CEO Richard Clemmer said that although the company is “working diligently with Qualcomm and various regulators towards a successful close this year,” the tight timetable might delay the closing of the merger until early 2018. According to a GuruFocus Forum post, the European Commission halted review of the Qualcomm-NXP merger at least twice since the Oct. 27 merger agreement, citing the merger might “significantly reduce innovation in the semiconductor industry.”

Qualcomm extended the tender offer’s expiration date to Nov. 17 according to an Oct. 20 press release. Completion of the tender offer remains subject to several conditions, including “the receipt of regulatory approvals in certain non-U.S. jurisdictions” and at least 80% of NXP’s shares tendered and not withdrawn. As of Oct. 19, only 3.6% of NXP’s shares have been tendered.