NXP is convincingly bouncing back from the pandemic-caused lull. And the best is yet to come.
NXP’s reported Q1 revenue of 2.6 billion dollars, up 2 percent compared to the previous quarter. It’s a sign that the chipmaker is firing at all cylinders since the historical pattern is the opposite: revenue typically decreases sequentially in Q1. Indeed, the latest result is up 27 percent compared to Q1 2020. Compared to the last non-corona-impacted first quarter, ie Q1 2019, it’s up 23 percent.
NXP expects revenue development going into Q2 will be flat. That’s partially because, like in Q1, the Eindhoven-headquartered chipmaker will be supply-constrained. Foundries have been running at full capacity for some time now and NXP just hasn’t been able to order as many chips as it would like. Another reason is NXP’s fabs in Austin, Texas, going offline. The facilities went down in mid-February for about three weeks after a severe winter storm completely shut down the city. The impact of the outages is about 100 million dollars in lost revenue.
Overall, it’s still a solid first half of the year. Compared to the pre-pandemic levels of 2019, NXP expects to increase revenue by nearly 20 percent in the first half of the year. In automotive, which accounts for about half of the company’s revenue, that percentage will be even higher, despite market research firm IHS Markit predicting a drop of 10 percent in car production this year.
Despite foundry capacity remaining tight for at least the remainder of the year, the second half will be even better, CEO Kurt Sievers told analysts during a conference call. “We’ve seen a significant increase in demand for our products,” Sievers said. “We’re at the beginning of a longer-term growth cycle.”
Most of the chips that NXP sells right now are being used immediately and don’t end up in a warehouse. “In our key segments, automotive, industrial and mobile, we do see that what we ship out is immediately being built into products.” This situation will continue throughout the rest of the year, Sievers added. “We continue to have low channel and low on-hand inventory, which we don’t anticipate rebuilding this year.”
During peaks like these in the semiconductor cycle, there’s always a risk that customers order more than they need, just to be sure that their supply is secured. The surplus is subsequently canceled if need be. This time, that won’t spoil NXP’s party since “customers are placing long-dated, non-cancelable and non-returnable order requests. And we’re making long-term strategic supply commitments to our partners in order to assure future supply.”
The increased demand isn’t falling from the sky, Sievers explained, but has been building up over the past two years or so, even though the pandemic put things on hold for a while. In automotive, car production may have slowed down, but the trend of putting more chips in cars stands firm. The models that are now being introduced contain significantly more semiconductors than the cars that were being manufactured two years ago. Additionally, the adoption of electric vehicles is going faster than anticipated, driving demand for electric power train control units and battery management systems, among other things.
So even though car manufacturing has still not fully recovered, the increased semiconductor content is driving up NXP’s sales. On top of that, the chipmaker is gaining market share. “We’re bearing the fruit from all the design wins in focus areas we’ve been working on so hard over the past years,” Sievers said, referencing applications such as radar and advanced driver-assistance systems.
All in all, the future looks bright. “We see a continued and very rapid rebound in demand across all of our end markets.” Particularly in automotive, “we absolutely see no reason why that should ease off or should go away.”