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NXP Semiconductors' Rebound Is Halfway There Already

Dutch-American microchip maker NXP Semiconductors (NASDAQ: NXPI) reported third-quarter results Monday evening. The company exceeded Wall Street's estimates across the board thanks to solid rebounds in several of the company's core target markets.

NXP Semiconductors' third-quarter results by the numbers

Metric

Q3 2020

Q3 2019

Change

Analyst Consensus

Revenue

$2.27 billion

$2.27 billion

0%

$2.23 billion

GAAP net income (loss)

($18 million)

$119 million

N/A

N/A

Non-GAAP earnings (loss) per diluted share

$1.93

$2.06

(6%)

$1.53

Data source: NXP Semiconductors. GAAP = generally accepted accounting principles.

The numbers above were in line with the preliminary results that NXP reported on October 8. As the company explained three weeks ago, market demand recovered significantly across all of NXP's target markets but especially strongly in the automotive, Internet of Things (IoT), and mobile end-market categories. Rebounding end markets combined with successful launches of new products to stabilize NXP's revenues at a level comparable to the year-ago period's results. As a reminder, second-quarter sales fell 18% year over year.

Market by market

Automotive computing sales fell 8% year over year to $964 million, but that's still a 43% improvement over the second quarter's dead-in-the-water performance. Automakers in Europe and America have generally restarted their paused production lines while the Japanese car giants are lagging a bit behind.

The industrial and IoT division saw sales rise 21% year-over-year to $514 million, which works out to an 18% improvement over the second quarter. Connectivity chips and general-purpose processors drove these strong results.

Mobile revenues rose 5% over the year-ago reading and 32% from the second quarter. Mobile wallet chips played a large part in this improvement alongside ultra wideband radio solutions for the Samsung (OTC: SSNLF) Galaxy Fold and Galaxy Note 20 Ultra flagship phones.

Finally, NXP's communication infrastructure sales fell 4% to $452 million, in line with the previous quarter's result but $35 million above management's guidance target. Roughly half of the positive surprise resulted from customers accelerating their component orders ahead of the ban on American companies doing business with Chinese technology titan Huawei.

A technician in mask and goggles inspects a semiconductor chip.

Image source: Getty Images.

Bullish signs

The company generated $459 million of free cash flows in the third quarter. Of these cash profits, $105 million was funneled into dividend payments and NXP paid off a collection of debt papers worth $1.83 billion after the closing of this reporting period. The debt balance now stands at roughly $5.8 billion.

NXP has also decided to restart its share buyback program, which was paused in order to conserve cash during the COVID-19 health crisis. I don't expect huge investments in the buyback program, given the fact that share prices are hovering less than 10% below their all-time highs, but the return to open-market buybacks is still a vote of confidence for NXP's target markets and for its financial health in general.

It's not business as usual yet -- not by a long shot -- but NXP is poised to benefit as the automotive, mobile, and industrial markets continue to recover from the coronavirus pandemic of 2020. In particular, we're talking about an established market leader in automotive computing at a time when self-driving cars and electric vehicles are screeching into the mainstream market. This stock belongs in both value and growth portfolios right now, trading at just 18 times forward earnings estimates.

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Anders Bylund owns shares of NXP Semiconductors. The Motley Fool recommends NXP Semiconductors. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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