Many semiconductors stocks have been range-bound over the past 12 months. The likes of NXP Semiconductors (NXPI, Financial) are down almost 20% from their 52-week highs, and have been trading in a pretty tight range for several months.
With the stock consolidating at these levels, I think investors should consider scooping it up because of its long-term prospects.
A Merger With Freescale
In the most recent quarter, NXP Semiconductors shared earnings per share of $1.35, four cents higher than the estimates. On the other hand, the company’s revenue came in at $2.37 billion, $20 million greater than the estimates. Moreover, that figure also represents a surge of over 50% in revenue.
The company had a $537 million in free cash flow, and displayed a 12% net margin. Most significant is the escalated sales in the automotive sector, which came in at $805 million. All of these together throw light on the appropriate and quick integration of the company with Freescale (FSL, Financial).
As per management guidance, NXP is well poised to double its sales figures on the back of the merger with Freescale. In short, the merger was a success.
IoT Prospects
NXP Semiconductors manufactures various kinds of chips that are highly efficient and offer high levels of security at lower power consumption levels, a supreme characteristic for Internet of Things technologies.
As a matter of fact, the company’s largest revenue stream arrives from chips for automobiles, with around 36% of sales in the prior quarter coming from this particular segment. However, the company also manufactures chips that are used in smart homes, security, wireless payments and other applications.
At present, connected cars is one of the fastest evolving segments of the IoT, and the company’s position as a prominent supplier of chips in the market makes it a robust player to gain huge advantages from the IoT trend.
Most significantly, the company completed its merger with Freescale Semiconductor to form the largest automotive chip supplier around the globe, currently claiming around 14.5% of the market for automotive semiconductors.
Not only this, the company holds a robust position in automotive infotainment, with prominent solutions for audio and visual processing. Moreover, the company has also secured design wins with 9 foremost automobiles OEMs to offer chips for radar technology specifically used for cruise control, automatic steering and collision warning systems, among others.
Final Words
NXP Semiconductors may have been range-bound, but in the long run, the stock will break out of the barrier and will even surpass its all-time highs. The chipmaker’s presence in several high growth markets makes it an exquisite pick for investors with time horizons of roughly 5 years.
Disclosure: No position.
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