NXP Semiconductors Reports Second Quarter 2018 Results

Announces $5 Billion Share Repurchase Authorization and  Termination of Qualcomm and NXP Purchase Agreement

  Q2 2018
Revenue$2.290 billion
GAAP Gross margin51.5%
GAAP Operating margin6.0%
Non-GAAP Gross margin52.8%
Non-GAAP Operating margin27.0%

EINDHOVEN, The Netherlands, July 26, 2018 (GLOBE NEWSWIRE) -- NXP Semiconductors N.V. (NASDAQ:NXPI) today reported financial results for the second quarter 2018 ended July 1, 2018.  The company also confirmed it will hold its second quarter 2018 earnings call at 8:00am EDT on July 26, 2018.

NXP delivered second quarter revenue of $2.29 billion, an increase of 4 percent year on year, and an increase of 1 percent as compared to the prior quarter. HPMS segment revenue was $2.19 billion, an increase of 5 percent year on year, and an increase of 1 percent on a sequential basis.

Within the Automotive group, second quarter revenue was $1,008 million, up 7 percent year on year, with auto MCU, advanced analog and infotainment all contributing to the year on year growth. Within the Secure Connected Devices group, second quarter revenue was $644 million, up 10 percent year on year driven by demand for general purpose, multi-market MCUs, high performance application processors, and the continued year on year growth of mobile transaction products, offset with declines in mobile audio. In the Secure Interface and Infrastructure group, second quarter revenue was $398 million, down 9 percent year on year due to declines within the Digital Networking and RF-based product groups, with annual growth in Interface and Power products partially offsetting declines. During the second quarter, the U.S. Commerce Department ban on product shipments to ZTE negatively impacted the sale of RF Power and Digital Networking products. Lastly, in Secure Identification Solutions group, second quarter revenue was $143 million, up 7 percent year on year due to growth in the mobility and retail market.

NXP has received today notice from Qualcomm Incorporated that Qualcomm has terminated, effective immediately, the purchase agreement between NXP and an affiliate of Qualcomm following the inability to obtain the required approval for the transaction from the State Administration for Market Regulation (SAMR) of the People’s Republic of China prior to the end date stipulated by the parties under the purchase agreement. Qualcomm has notified NXP that it will pay the $2 billion in termination compensation by 9:00 am, New York City time, on July 26, 2018.

“While it is unfortunate that the semiconductor powerhouse that would have resulted from the transaction with Qualcomm could not close after 21 months of diligent efforts by the team, we are confident in our future as an independent market leader and will continue to focus our efforts to drive our long-term strategy in our leadership markets of automotive and secure IoT solutions. Our strategic preparation has us more convinced about the opportunity from our key focus areas, which we will share more about at our upcoming Analyst Day in New York City,” said Richard Clemmer, NXP’s President and Chief Executive Officer

“Consistent with our historic policy of returning excess cash to shareholders, the NXP Board of Directors has authorized a $5 billion share repurchase program based on the significant strength of the NXP capital structure, and its confidence in the company’s ability to drive long-term growth and strong cash flow,” said Clemmer.   

“In the second quarter, our GAAP operating margin was 6.0 percent, an increase from the 2.3 percent reported in the second quarter of 2017 due to better fall-through on higher revenue as well as lower expenses related to purchase price accounting.  Our second quarter non-GAAP operating margin was 27.0 percent, a decline of 140-basis points as compared to 28.4 percent reported in the second quarter of 2017, primarily due to increased investments in new product development. On a sequential basis, our second quarter GAAP operating margin declined 10-basis points from the 6.1 percent reported in the first quarter of 2018, and our non-GAAP operating margin declined 20-basis points due to lower fall through and continued investments in new products. And finally, we repaid $1.25 billion of our long-term debt during the quarter, resulting in a total long-term debt balance of $5.34 billion. Due to the improved net debt position and positive cash flow generation, our overall financial leverage was reduced to 0.74x,” said Peter Kelly, NXP Chief Financial Officer.

Summary of Reported Second Quarter 2018 ($ millions, unaudited) 

   Q2 2018  Q1 2018  Q2 2017    Q - Q  Y - Y 
 Product Revenue$2,193  $2,166  $2,098          1%          5% 
 Corporate & Other$97  $103  $104   -6%  -7% 
  Total Revenue $     2,290    $     2,269     $     2,202       1 %     4 %  
  GAAP Gross Profit $     1,180     $     1,172     $     1,083       1 %     9 %  
  Gross Profit Adjustments (1) $ (30 )   $ (28 )   $ (84 )          
  Non-GAAP Gross Profit $     1,210     $     1,200     $     1,167       1 %     4 %  
  GAAP Gross Margin   51.5 %     51.7 %     49.2 %          
  Non-GAAP Gross Margin   52.8 %     52.9 %     53.0 %          
  GAAP Operating Income / (Loss) $     137     $     138     $     50       -1 %     174 %  
  Operating Income Adjustments (1)   (481 )     (479 )     (575 )          
  Non-GAAP Operating Income $     618     $     617     $     625       0 %     -1 %  
  GAAP Operating Margin   6.0 %     6.1 %     2.3 %          
  Non-GAAP Operating Margin   27.0 %     27.2 %     28.4 %          

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