NXP’s soft landing: so far, so good

NXP reported 3.1 billion dollars of revenue in Q1 2024, roughly equal to the same three-month period last year. Not a bad result considering the slump in car sales in many parts of the world and the fact that the Eindhoven-based chip firm derives well over half of its revenue from automotive sales. NXP’s automotive Q1 revenue dipped only 1 percent year-on-year.

The decent result isn’t mere luck. 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. “We continue to manage an orderly process of inventory digestion with our major direct automotive Tier 1 customers,” CEO Kurt Siever told investors on a conference call discussing Q1 results.

Sievers expects inventory digestion to be finished by the end of Q2 or the start of Q3, setting up a return to growth that’s supported by the ramp of a new radar platform and other products. Furthermore, he urged his audience to take headlines about the slump in electric vehicle (EV) sales with a grain of salt. They’re “more dramatic” than what’s called for, he said. EVs are an important driver of overall automotive IC growth since they contain far more chips than traditional cars.

Both NXP’s Industrial & IoT and Mobile business units have been experiencing a slowdown as well. Following a trough in Q1 2023, the whole year has seen a slow but steady decline. Both businesses saw double-digit revenue increases year-on-year in Q1 (14 and 34 percent, respectively). Communications Infrastructure (-25 percent) is still lagging.

All in all, NXP is setting itself up for a better second half of the year, across all segments, Sievers said. “Our early views into the second half of the year underpin a cautious optimism that NXP is successfully navigating through this industry-wide cyclical downturn. We’re beginning to see incrementally improving demand signals for the second half of 2024 across all end markets.” The expected bottom line is roughly flat revenue growth for the full year, as communicated previously.