Apple (AAPL, Financial) supplier NXP Semiconductors (NXPI, Financial) is still a long way from its 52-week highs, but the stock is making steady progress. Given the company’s smart initiatives, NXP Semiconductors can soon breach its 52-week highs, signifying massive upside from current levels.
Merger with Freescale
NXP Semiconductors’ partnership with Freescale (FSL, Financial) was a good decision, as it had some advantages as well as disadvantages. However, advantages dominate disadvantages. The main disadvantage for the company is that Freescale’s debt was around $5 billion, which now adds to NXP’s prevailing debt of $4.2 billion, making a total of $9.2 billion.
Debt of $9.2 billion is a huge amount, but the progressive effects of the partnership should help to reduce the debt. According to the most recent figures, Freescale and NXP Semiconductors' combined yearly topline was approximately $10 billion, as both the companies were profitable.
The company detailed $1.4 billion of net income in the previous year whereas Freescale’s earning was a little complex. Freescale finally managed to gain profit after performing badly in the four years before 2014.
This partnership will endure to boost revenues and expand margin, if the company’s management can exploit the resources of both companies like technology and supply channels.
NXP's key end-markets
NXP Semiconductors is making efforts to enter in various types of markets in which the automotive segment appears to be the company’s top priority. The automotive segment has a lot of potential for growth.
The number of chips being installed into the average vehicle has been progressively surging, mainly due to the extensive range of technologies comprising networking systems, entertainment systems, autonomous driver systems, driver-assistance and hybrid car evolution.
NXP Semiconductors holds a robust position, as it is the major player in automotive microcontrollers after the Freescale deal, and is also present in various arenas like radar ICs for driver-assistance systems and vision processors.
Apart from this, safe transactions are also important, as it has a leading position in the NFC chip business. The company has ongoing deals with Samsung, Apple, etc.
In addition to all that, NXP Semiconductors is a top supplier of microcontrollers for mass transit smart cards, electronic ID cards or documents and EMV payment cards. The average selling price for this segment is usually low, but volumes are massive and rising at a vigorous rate.
Conclusion
All in all, NXP Semiconductors has many tailwinds going forward, and the stock is currently undervalued. It seems like investors are underestimating the potential of NXP Semiconductors’ initiatives, thereby making the stock a decent pick before the earnings season.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
