N XP Semiconductors stock has been trading near record highs amid bullishness over the chipmaker's growth prospects in markets ranging from automotive and communications to security systems and mobile payments.
NXP ( NXPI ) supplies mixed-signal, analog, power management, radio frequency and digital processing chips. Its technology is used in a variety of applications, including keyless entry systems, car entertainment consoles, audio amplifiers, modems, smartphones, smart cards, lighting and wireless infrastructure gear. The company also provides near-field communication (NFC) technology that lets devices exchange information at short range.
Much of the recent focus on NXP has centered on 2014 design wins that put its solutions in high-profile products such as theApple ( AAPL ) iPhone 6 and Samsung Galaxy S5 smartphone.
"The ramp-up of the iPhone 6 has been very strong, and NXP has been able to benefit significantly from it," Pacific Crest Securities analyst John Vinh told IBD.
NXP also has made strides in numerous other end markets, analysts say.
In a December report initiating coverage on NXP at outperform, Oppenheimer analyst Rick Schafer said NXP is among "the best positioned names in our coverage universe to capitalize on rising semiconductor content in key verticals, including auto, industrial and communications, while maintaining the dominant franchise in the growing secure ID, secure transactions and mobile payment markets."
Optimism over the company's growth prospects helped push NXP stock to an all-time high of 82.76 on Jan. 13. Shares currently trade near 78 and are up 44% from an early-October slump, when fears of an industrywide chip slowdown sent the whole sector lower.
Chips Climb Back
Over that same time frame, the IBD Electronics-Semiconductor Fabless industry group has grown 23% in value. It currently ranks No. 13 out of the 197 industries tracked.
NXP and a few other stocks lead the group's rankings with IBD Composite Ratings of 99 -- that factors in several metrics, such as earnings growth and stock price gains. The list includesAmbarella ( AMBA ),Avago Technologies ( AVGO ),Cavium ( CAVM ) andMonolithic Power Systems (MPWR).
All have benefited from favorable industry trends.
"We believe the semiconductor industry has entered a more stable and less cyclical growth phase, characterized by mid- to high-single-digit annual revenue growth," JPMorgan analyst Harlan Sur noted in a Jan. 14 industry report.
The upshot for NXP has been four straight quarters of double-digit sales and earnings growth -- the first time that's happened in years. The company is expected to maintain the streak when it reports fourth-quarter results after the close of extended trading on Feb. 4.
Analysts polled by Thomson Reuters expect NXP to post Q4 earnings of $1.32 a share, up 33% from the prior year. Revenue is seen rising 17% to $1.51 billion.
Pacific Crest's Vinh expects "solid results" from NXP -- not only because of its iPhone business, but also because of strength in other product lines.
"The automotive business has been relatively healthy, and the payments business remains robust because they are benefiting from the rollout of secure payment cards in China," Vinh said.
Outfitting China's Cars
On its website, NXP claims to be the No. 1 automotive semiconductors supplier for China. The company expanded its presence in China last year through a joint venture with Datang Telecom Technology to develop and sell advanced automotive integrated circuits (ICs) in high-performance mixed signal technology.
Vinh also sounds upbeat about NXP's potential in other markets: "We are looking for the possibility of other smartphone manufacturers adopting mobile payments, especially in terms of the Chinese OEMs. This will provide NXP with growth and content opportunities."
Growth in China's automotive and mobile payment markets should help NXP offset declines in China's bank card IC market, where the company "is losing share to six local IC design houses," according to Liwen Zhang, analyst at Blaylock Beal Van.
China is far and away the biggest market for NXP. It accounted for more than 40% of revenue in 2013, the last year for which annual data are available.
Germany ranked second at 9%.
NXP officials declined to comment for this article, citing a quiet period before the company's Q4 earnings release.
In a conversation with IBD last summer, NXP's CEO Rick Clemmer said the company's strategy is to establish leadership positions in areas where it can dominate the competition.
Strategy Plays Out
"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," Clemmer said.
He cited security products, where NXP is "probably two times bigger than the next largest player," and car radio products, where "we are probably six or seven times bigger than the next player."
He also said NXP has a "huge market share" in keyless-entry cars.
Meanwhile, NXP continues to broaden its reach into other markets. In November it paid an undisclosed sum for Quintic, a maker of chips for sports/fitness applications, human-interface device apps and smart app-enabled accessories for smartphones and mobile computing devices.
"This transaction contributes to NXP's drive to create security and connectivity solutions for fast-growing Internet-of-Things applications in health & fitness wearables, mobile transactions, proximity marketing, smart home and automotive," NXP said in a press release.
Analysts surveyed by Thomson Reuters expect NXP to post full-year 2014 EPS of $4.72, up 43% from 2013. Earnings are expected to rise 16% in both 2015 and 2016.