NXP Semiconductors: Climbing The Chip Market Food Chain
Life revolves around semiconductor chips — a fact that is becoming increasingly true. That makes chip stocks hot, even as the industry’s traditional stronghold in personal computers sputters. The question is, which chip stock? For a while, the answer was easy: the one that supplies the most chips to Apple’s iPhone. Then Samsung’s Galaxy phones entered the picture. Then the iPad. Now, the still blurry but rapidly developing Internet of Things. Suddenly there was a small army of chipmakers supplying the top of the market.
That is complicated by the fact that literally scores of top chip stocks have scored huge multi-year runs. Not all of them will continue. Which, at this point, are the most likely to keep climbing?
One name at or near the top of most lists is NXP Semiconductors (NASDAQ:NXPI). The Netherlands-based chip developer started the year as a key vendor for iPhone and Galaxy chips, and a supplier of keyless entry, entertainment consoles and audio amplifiers to automakers. It is rapidly expanding its grasp. It moved seriously up the food chain in March, when it announced its $ 16.7 billion combination with Austin’s Freescale Semiconductor (NYSE:FSL), the top chip supplier to the global auto industry. Once closed, potentially in the second half of this year, the deal will put company revenues above $ 10 billion and generate an expected $ 500 million in cost cuts.
At the start of May, NXP announced a partnership with Chinese consumer electronics maker Xiaomi. NXP will supply low-power chips used as window and door sensors, and as wireless switch and networking components for appliances. A week later, it aced a deal to supply Samsung with mobile payment solutions for the Galaxy S6 smartphones sold in China.
That’s a lot of breadth. It’s also a lot of moving parts.
NXP is looking to trim some girth by selling its power amplifier business, which generates between $ 350 million to $ 400 million, according to Mark Lipacis with Jefferies. Lipacis contends, in a May 12 note, that NXP can produce $ 10 per share of earnings in 2018. That is 72% above consensus views for 2015 (which are 22% above 2014 results). NXP topped analysts Q1 earnings and revenue consensus, and its margins remain near highs.
NXP shares on Thursday broke out above a buy point of 105.04. It ended the week in buy range, 2% above the buy point.