Most Apple (AAPL, Financial) suppliers have performer nicely this year and NXP Semiconductors (NXPI, Financial) is not an exception to the trend. I like NXP Semiconductors more than other Apple suppliers primarily because of its diverse business model.
While the likes of Skyworks Solutions (SWKS, Financial) also have a diversified revenue source, the company generates most of its sales from the smartphone market. NXP Semiconductors, on the other hand, is present in various high growth sectors and can continue performing better going forward.
Massive Opportunity
The automotive industry is gradually rising and driverless cars are no longer a theoretical concept. Many companies, such as Tesla (TSLA, Financial), are working hard to introduce autonomous cars.
With the influx of cash, autonomous vehicle market is on its way to explode in the next few years. Furthermore, BMW (BMW, Financial), Tesla and Mercedes have recently revealed some features that permit several driverless abilities.
On the other hand, according to IHS Automotive, 10% of entire vehicles sold by 2035 will be totally autonomous. And NXP Semiconductors is well positioned to gain advantages from this thriving industry.
One most significant things that will certainly help the NXP Semiconductors to grow further is the launch of its new autonomous system, BlueBox. This product permits car manufacturers to equip vehicles with processors, sensors and cameras that offer a level automation.
Additionally, the company detailed that BlueBox is currently being tested by several key auto manufacturers. The BlueBox has trumped the company’s foremost rival NVIDIA (NVDA, Financial), which proposes an identical product but lacks the features of an all-in-one platform.
Stunning Merger
In the most recent quarter, NXP Semiconductors surpassed Wall Street’s anticipated earnings per share of $1.35 by four cents and forecasted revenue of $2.35 billion.
What really helped the company to deliver robust quarterly results is the integration of Freescale’s proficiency with the company. Freescale was already a sturdy firm, profitable and according to management guidance, NXP stands to twice its sales figures from this merger.
When this merger took place in 2015, analysts were doubtful if the company was capable of swiftly integrating the two massive entities. However, with this deal, the new company rapidly turned into the industry leader as well as largest producer of automotive semiconductors around the globe.
Before the deal, NXP Semiconductors’ business was limited to the mobile payment and security market, one with secure returns but bland growth. Sort of like Skyworks Solutions. However, after the acquisition, NXP Semiconductors has grown rapidly in this market, which is why I am bullish on the stock.
Conclusion
NXP Semiconductors is still an Apple supplier, but the company’s identity is slowly changing. Unlike other suppliers, NXP Semiconductors is not overly dependent on Apple, which is why I am bullish on the stock going forward.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
