Freescale Semiconductor share price

September 7, 2022
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What:Shares of NXP Semiconductors fell more than 18% on Thursday, weighed down by a mixed third-quarter report and gloomy next-quarter guidance.

So what: In the third quarter, the semiconductor maker saw sales rise 0.5% year over year to $1.52 billion. On the bottom line, adjusted earnings came in at $1.57 per diluted share, a 16% improvement over the $1.35 per share reported in the year-ago quarter.

The revenue result was below NXP's official guidance for the third quarter. On the bottom line, the earnings exceeded the top end of the guidance range.

For the next period, NXP set the bar very low. Sales are expected to fall in each of the company's six reportable divisions, typically at double-digit percentage speeds. Overall, total revenues are seen falling something like 15% sequentially. To put that forecast into a seasonal perspective, NXP issued flat sequential sales guidance from the third quarter of 2014 to the fourth. In the final tally, sales actually rose 1.5%.

In other words, this forecast is distressing and investors acted accordingly.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes - just in case they're material to our investing thesis.

Now what: NXP's hefty stock plunge also dragged down Freescale Semiconductor in a 15% rout. NXP is in the midst of acquiring Freescale Semiconductor to unlock economies of scale and open up cross-selling opportunities as the two respectable-sized businesses team up to form a single industry giant.

NXP's management said that the merger with Freescale Semiconductor remains on track for closing in the fourth quarter of 2015, as none of the regulatory bodies involved have kicked up any huge challenges. In order to satisfy earlier regulator notes, NXP is already divesting its radio frequency power controller operations by selling it to a Chinese capital investment firm for $1.8 billion. That deal is also expected to close in the coming quarter and will reduce NXP's fourth-quarter sales even further. This effect has not been baked into NXP's already somber revenue forecast figures.

So what's wrong? According to NXP CEO Richard Clemner, it's all about macroeconomic pressures:

As we entered the third quarter, we noted a weakening of demand as our customers began to communicate concerns with an uncertain economic environment. As the third quarter progressed, our end-customers, across multiple end-markets continued to voice an increased and significant degree of uncertainty around any increase in demand. This has resulted in lower than planned sell-through and an increase of channel inventory. As a result, our guidance for the fourth quarter reflects a much more cautious view of near term sales which may occur during the quarter.

Sensing an upcoming share price drop, NXP's board of directors also chose to boost its share buyback program, adding authorization to retire another 20 million shares on the open and private markets. NXP shares have gained 74% over the last 52 weeks in spite of Thursday's massive drop. Still, the stock is actually trading at the lowest prices seen since last January, giving this buyback move some opportunistic street cred.

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