Paul van Gerven
8 February

NXP avoided going in the red even as its growth engines started to sputter.

NXP has managed to top last year’s record revenue, albeit by a hair: 2023 sales came in at 13.2 billion dollars, 0.5 percent higher than in 2022. It’s a “solid” result, CEO Kurt Sievers said, considering the downturn that pushed many a chipmaker into the red last year. He expects 2024’s bottom line to be roughly flat again, even as NXP’s mainstay market of automotive chips has started to cool.

NXP’s automotive business initially took a tumble after car manufacturers canceled orders following the onset of the pandemic in 2020, only to rebound strongly after it became clear that car sales didn’t drop as dramatically as expected and that the increasing chip content of cars propped up sales. For a while, NXP’s automotive business was all about placating desperate customers and finding as much additional manufacturing capacity as possible.

This explosive growth more than compensated for the weakness in consumer electronics that followed the ‘work and play at home’ peak set in motion by the pandemic. This decline affected NXP’s Mobile and Industrial & IoT business units, the latter having significant exposure to consumer end markets in addition to industrial electronics applications (for which demand remained intact until recently).

In 2023, NXP’s Automotive revenue grew 9 percent year-on-year to 7.5 billion dollars, whereas Industrial & IoT sank 13 percent to 2.4 billion dollars, Mobile dropped 17 percent to 1.3 billion dollars and Communications Infrastructure rose 5 percent to 2.1 billion dollars. Automotive represented well over half of NXP’s business (56 percent).

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Digesting inventory

The numbers, however, hide the fact that NXP’s growth engines have started to sputter. In Automotive, the non-cancellable, non-returnable orders that customers were willing to sign two years ago are a thing of the past. Global car sales are down, and the 9 percent year-on-year growth in Automotive is mostly the result of higher pricing, offsetting lower shipment volumes. In Industrial, price hikes weren’t able to counteract lower demand.

NXP started to dial down supply in the second quarter of 2023 to engineer “a soft landing.” By sacrificing some quarterly revenue to keep customer inventory at modest levels, big swings in demand are somewhat leveled out. This strategy appears to have worked, as other industrial-IC companies such as Infineon and Texas Instruments reported much bigger revenue drops recently.

Going forward, NXP is looking at a temporary reversal of growth drivers. As fears of a major recession subside and the inflation beast is being tamed, consumer spending is trending upward. Meanwhile, Automotive and core Industrial end markets will continue to digest excess inventory before resuming growth in the second half of the year. Putting it all together, NXP is projecting a modest revenue growth or decline for 2024.

Main picture credit: NXP