It’s been a year with two faces for NXP, but all’s well that ends well.
Believe it or not, 2020 was a better year for NXP than the year before. In 2019, the Eindhoven-headquartered chipmaker saw its revenue drop 6 percent year-on-year, whereas over 2020 the decline was ‘only’ 3 percent, to 8.6 billion dollars. The company stayed well clear of losses too, with an operating income of 418 million dollars (-35 percent) and a net income of 80 million dollars (-71 percent). The so-called non-GAAP operating income, used by NXP to provide a better comparison with previous periods, was 2.23 billion dollars (-13 percent). Not a bad result for a year in which the world was enveloped in a pandemic the likes of which haven’t been seen in a century.
The – all things considered – decent financial performance is the result of a sharp rebound in demand in the second half of the year, which mostly made up for a pretty bad start. NXP’s quarterly revenue declined 12 and 10 percent sequentially in Q1 and Q2, respectively, only to increase 25 and 11 percent in Q3 and Q4. In automotive, from which NXP derives about half of its revenue, the fluctuations were even more pronounced: -9, -32, +43 and +24 percent going from Q1 to Q4.
“It certainly has been a tumultuous year,” says Jean Schreurs, executive director of NXP Netherlands. And the tumult hasn’t quite ended yet: foundries are now running at full capacity, leaving fabless and fablite chipmakers like NXP lining up to get their orders fulfilled. Nonetheless, this is a much more comfortable position for NXP to be in than it was a year ago. And it looks like it will stay that way for a couple of quarters, says Schreurs.
Particularly in automotive, NXP went from much less orders than normal to so many that there’s not enough capacity to manufacture them all at foundries. How did this situation arise?
“First of all, we didn’t have a good start of last year. Customers had been reducing their inventories for a while. Then the pandemic hit, causing a further reduction in demand across the board. All our product groups were affected, in every sales region and throughout all our distribution channels. I know that automotive has attracted the most attention, particularly now that car manufacturers have to deal with a shortage of chips, but the slip in demand was broader than that.”
“Meanwhile, the pandemic-mitigating measures seem to have boosted demand for certain products, such as laptops and consumer electronics. Foundries quickly filled up with semiconductors for these products. During the second half of the year, demand in our end-markets rebounded really strong. Coming from a low-inventory situation in the channels, this created a very strong boost in demand for our semiconductors, but the foundries were mostly booked already. Q1 2021 is completely sold out.”
Does this mean NXP could be doing better right now?
“Technically, yes. If we could find the manufacturing capacity, we’d be having higher sales in Q1, for example. However, that would only mean that we satisfy demand more quickly. Across the year, I don’t know to what extent we would be pulling demand out of Q3 and Q4.”
“In any case, Q1 is shaping up to be a very good quarter: we’re guiding a 2 percent sequential increase in revenue. That may not seem like much, but historically, Q1 isn’t our best quarter. With Q4 already being a good quarter, the fact that we expect to be growing revenue QoQ going into Q1 is very telling.”
How about the rest of the year?
“We’re guiding only one quarter ahead. However, I can say that things are looking quite good. It will take at least a couple of quarters before we catch up with demand and another couple of quarters before our customers can start building up inventory.”
Did the US-imposed trade restrictions on China have any impact? And do you expect the Biden administration to loosen the reins?
“China is a big market for us, particularly in automotive and industrial. Most shipments continue unimpeded, but it’s clear we can’t supply a blacklisted company such as Huawei. We expect that China and the US will continue their fight over global economic dominance, which is increasingly a fight about technology. However, we suspect that the Biden administration will be more predictable and open to discussion. That will be very helpful for us.”
The current chip shortages have been fanning discussions about Europe’s dependence on predominantly Asian foundries for its chip manufacturing. What’s NXP’s stance in this?
“Politicians generally like the sound of a factory, but we feel that the focus should be on R&D, next to manufacturing. And it’s essential to build on your strengths. We do agree that the European industry and governments could be collaborating more, and we’re participating in the discussions on that. I wouldn’t be surprised if we’d hear about that more in the coming years.”