Earnings Digest | NXP Plunges, Auto Chip Sector Takes a Hit!
$NXP Semiconductors NV(NXPI)$ suffered a big tumble yesterday after releasing its Q2 earnings, and the auto chip sector took a chill!
The chipmaker's shares plunged 7.76% in after-hours trading following the announcement.
1.Revenue and Profit
Its Q2 revenue was $31.27 billion, down 5.2% year-on-year, the steepest drop in four years!
However, Q2 revenue slightly exceeded management's midpoint guidance and analyst expectations.
Profit-wise, the quarter's gross margin stood at 57.3%, also surpassing both management's forecast and analyst expectations.
2. Q3 Guidance
However, the stock plunged due to weaker-than-expected third-quarter guidance. NXP expects Q3 revenue between $3.15 billion and $3.35 billion, below analysts' $3.35 billion estimate.
Projected earnings per share are between $2.60 and $3.01, missing the expected $3.09.
3.Valuation
Before the Q2 report, NXP had surged over 14% this year, reaching historical highs. Valuation metrics like P/B and P/S ratios are also at peak levels.
High valuations and underwhelming guidance contributed to the stock's sharp decline, reminiscent of previous scenarios seen in $ASML Holding NV(ASML)$ .
Clearly, prior market expectations were overly optimistic!
NXP, a major player in automotive chips, derives over 50% of its revenue from this single sector.
In Q2 2024, NXP's automotive chip segment generated $1.728 billion in revenue, a 7.4% year-over-year decline. This poor performance was anticipated, given reduced European subsidies for new energy vehicles last year and global inflationary pressures affecting market penetration for such vehicles.
$Tesla Motors(TSLA)$ 's recent performance also reflects these challenges, with Q2 deliveries of 444,000 vehicles down 4.8% year-over-year, marking two consecutive quarters of decline.
4.Challenges
Looking ahead, potential re-election of President Trump and his policies favoring traditional energy sources might lead to subsidy cuts for new energy vehicles and significant drops in oil prices, potentially boosting demand for fuel-powered vehicles.
Moreover, escalating global trade tensions are impacting the automotive market. Europe has already imposed tariffs on Chinese new energy vehicles, hinting at potential conflicts ahead.
Geopolitical risks, compounded by the ongoing US-China semiconductor rivalry, might accelerate China's efforts to replace imported chips in its automotive sector. China, NXP's largest market contributing 33% of its revenue in 2023, poses a risk if this trend persists.
NXP's lukewarm Q3 guidance spells bad news for other automotive chip giants like $Analog Devices(ADI)$ and $ON Semiconductor(ON)$ , potentially fostering pessimism in the new energy vehicle sector.
In conclusion, high valuations can be poisonous; any slight performance flaw gets magnified endlessly.
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