NXP Semiconductors (NXPI, Financial) is a big player in the semiconductor space as it has turned itself into the largest supplier of automotive semiconductors around the globe since its merger with Freescale Semiconductor.
Although the recent Qualcomm (QCOM, Financial) acquisition rumors have pushed shares of NXP Semiconductor higher, investors should focus on the company’s prospects as it can be more rewarding for investors if the company is not acquired.
All the major automakers are putting in a lot of effort to make their presence strong in the self-driving cars market, which is growing at a better-than-expected rate. On top of this, NXP Semiconductors is in a unique position to gain huge benefits as the cars get smarter as well as more connected.
In the prior five years, the company’s profits surged considerably. Furthermore, its operating margin reached 33% in 2015 from just 8.5% in 2011. Due to the merger with Freescale Semiconductor, NXP is leading in general purpose microcontroller products, automotive semiconductor solutions, etc. The merger has pushed the revenue generated from the automotive segment to 40%, a surge of approximately 20%.
On the other hand, the company has a diversified portfolio, as it is also the prominent supplier of NFC chips that are being used by giant smartphone companies such as Apple (AAPL, Financial), which allow mobile payment systems. Moreover, the company’s future is heavily dependent on the success of the IoT, as it is tangled in the connectivity solutions that will permit devices to communicate with each other.
Apart from all this, NXP Semiconductors has also launched its BlueBox which permits automakers to manufacture driverless cars. Basically, it is an identical platform like that of NVIDIA’s (NVDA, Financial) Drive PX, but it receives some additional benefits compared to NVIDIA’s Drive PX platform.
The company’s strength in automotive chips allows it to build relatively less expensive bundles to move ahead of its competitors and appeal to cost-effective auto manufacturers.
Conclusion
NXP Semiconductor is nicely positioned to benefit from the growth of the automobile industry. The potential widespread adoption of driverless cars will massively boost NXP Semiconductors’ earning in the long term, whereas its presence in the IoT space is another positive. Although Qualcomm acquisition rumors have propped up the share price, NXP can be more rewarding for investors on in own in the years to come. Thus, investors can definitely add the stock to their portfolios.
Disclosure: No position.
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