Why NXP Semiconductors (NXPI) Shares Are Falling Today
What Happened:
Shares of chip manufacturer NXP Semiconductors (NASDAQ: NXPI) fell 10.1% in the morning session after the company reported second-quarter earnings results. Its revenue guidance for next quarter missed analysts' expectations, and its inventory levels slightly increased. In addition, revenue declined 5% during the quarter. On a more positive note, the company is expected to return to sequential revenue growth in the near term, as it exits a cyclcial trough. Overall, this quarter could have been better.
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What is the market telling us:
NXP Semiconductors's shares are quite volatile and over the last year have had 3 moves greater than 5%. But moves this big are very rare even for NXP Semiconductors and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 7 months ago, when the company dropped 5.2% as auto-related semiconductor stocks experienced a decline after auto-chip maker Mobileye provided preliminary estimated financial results for Q4'2023 and FY 2024, which fell below Wall Street's expectations. Mobileye cut its Q4'2023 revenue guidance to a range of $634 million to $638 million, falling below both its initial forecast ($623 million to $648 million) and analysts' consensus estimates. Looking ahead, the company provided FY'2024 revenue guidance of $1,830 million to $1,960 million, below market expectations. For the first quarter of FY'2024, it expects revenue to drop about 50% from a year earlier.
The weak outlook was attributed to "excess inventory" built up by Mobileye's Tier 1 customers. Management elaborated, stating, "Based on our discussions, we understand that much of this excess inventory reflects decisions by Tier 1 customers to build inventory in the Basic ADAS category due to supply chain constraints in 2021 and 2022 and a desire to avoid part shortages, as well as lower than-expected production at certain OEM's during 2023."
Moving on, Mobileye expects this excess inventory to be largely consumed in Q1 2024, leading to lower volume in its EyeQ® SoC business and a temporary hit to profitability. Overall, the weak outlook signals potential challenges for semiconductor stocks in the near term.
NXP Semiconductors is up 16.5% since the beginning of the year, but at $257.65 per share it is still trading 11.4% below its 52-week high of $290.78 from July 2024. Investors who bought $1,000 worth of NXP Semiconductors's shares 5 years ago would now be looking at an investment worth $2,553.
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