Forget close nip-and-tuck battles. If you're a sports fan, you
know there's nothing more exciting than watching your team
clobber a rival.
NXP Semiconductors (
) is doing that in the chip business, while its stock is touching
new highs. With design wins that put its solutions in
high-profile tech gear such asApple 's (
) iPhone and Samsung's Galaxy S5 smartphone, NXP has built a big
lead over competitors in many of its end markets.
Its technology goes into everything from keyless entry systems
to car entertainment consoles and audio amplifiers -- plus
modems, smartphones, smart cards, lighting and wireless
The company provides both high-performance mixed-signal and
standard solutions for radio frequency, analog, power management,
interface, security, and digital processing products
NXP shares rose 2% Friday to a record closing high of 68.52
Financial Times reported
that Apple is working with NXP to add secure near-field
communications (NFC) technology into the next iPhone. On Tuesday,
NXP stock edged up to a new high of 70 intraday, before closing
NFC lets users quickly pay for coffee or other purchases while
standing in line. It is already used in many phones that run on
) Android operating system. The
iPhone 6 launch
is widely anticipated to be coming up Sept. 9.
CEO: NXP Targets Its Tech
Since being spun off from Philips Electronics in 2006, NXP has
tried to establish leadership positions in areas where it can
dominate its competition, says CEO Rick Clemmer.
"We have tried to focus the business on real leadership --
areas where we can have at least 50% more market share than the
No. 2 player," he told IBD.
Clemmer can cite several end markets where NXP has established
a big lead over other chipmakers.
In security products, he says, "we are probably two times
bigger than the next largest player in that space. In car radio
we are probably six or seven times bigger than the next player.
In keyless entry cars we have a huge market share."
That's not just idle boasting, company watchers say.
"NXP has identified fast growing opportunities and established
key leadership positions in several key application areas by
leveraging its technologies," Stifel analyst Tore Svanberg noted
in a recent report initiating coverage on NXP with a buy
That strategy has helped NXP produce steady profits the past
several years despite the often volatile nature of the
semiconductor industry, Svanberg said. "NXP has consistently
demonstrated a highly profitable business model which generates
solid cash from operations."
One advantage of building a big lead over rivals is that NXP
has more financial might to develop solutions for original
equipment manufacturers, Clemmer says.
"If we are three or four times bigger than the next
competitor, we can put more resources into R&D to meet
customer needs," he said.
Along with building leads in certain product areas, NXP also
has exited areas that don't provide sufficient returns.
"Our focus has been to look at business areas where we had a
true leadership position and move away from areas where we didn't
see how to make a profit," Clemmer said. "We were the leader in
digital TV but sold it because it is not a reasonable way to make
NXP doesn't divulge who its customers are. According to Yahoo
Finance, they include high-profile technology, electronics and
automotive companies such as Apple,Delphi (
), Panasonic, Samsung andSony (SNE).
Enabling A New iPhone?
Wall Street has shown a particular interest in the Apple
connection. According to last week's Financial Times report, NXP
will provide chips that let the new iPhone 6 connect with payment
terminals or ticketing systems wirelessly, so users can pay by
touching their phone screens.
In his interview with IBD, Clemmer refused to comment on the
"Apple-related rumors and speculation." Apple is scheduled to
host a special event on Sept. 9, during which the iPhone 6 and a
smartwatch are expected to be unveiled.
NXP and Sony co-invented NFC technology in 2002. Since then,
NXP has established itself as a market leader in secure wallet
transactions. Its NFC solution has reportedly been adopted by
Nokia, Google and Sony Ericsson.
NXP's existing NFC solutions include the radio chip that lets
users transmit information as well as a secure element that
protects that information, Clemmer says.
"You can use your smartphone to buy something and ensure it
does not have a cyber risk," he said. "It is transmitted to the
cloud on an encrypted basis."
One key advantage of the technology is its ease of use,
Clemmer says. "You can take your smartphone within a few inches
of the point-of-sale terminal. You don't have to carry credit
cards or transit cards."
Financially, NXP has been on a strong run of late. It has
produced eight straight quarters of double-digit or better EPS
growth. Revenue has risen in double digits six times during that
During the second quarter, NXP logged revenue of $1.35
billion, up 14% from a year earlier and slightly above the $1.33
billion expected by a consensus of analysts polled by Thomson
Reuters. Earnings gained 54% to $1.09 a share, topping views for
NXP's GAAP gross margin improved to 47% for the quarter from
45% the previous year. Its GAAP operating margin rose to 18% from
14% a year earlier.
Analysts expect to see continued margin gains in coming
"With further improvements to the model, a sustained demand
growth environment and a higher revenue run-rate, we project
further margin expansion and improved profitability," Svanberg
noted, adding that NXP looks to produce gross margins in the 52%
to 56% range and operating margins in the 23% to 28% range.
Analysts polled by Thomson Reuters expect NXP's earnings for
the full year to rise 41% to $4.65 a share. They see 2015 EPS
climbing another 15% to $5.37.