Demand recovery is evident, NXP Semiconductors' Q4 guidance returns to stronger-than-expected growth, rising nearly 3% in after-hours trading | Earnings Report Insights

In the third quarter of this year, Dutch semiconductor giant NXP Semiconductors saw a further slowdown in revenue decline, with expected revenue returning to positive growth this quarter, and the growth rate stronger than Wall Street's expectations, signaling good news of demand recovery.

After the earnings report was released, NXP Semiconductors' stock, which had already risen 1.1% on Monday, further increased in after-hours trading, with gains approaching 3%.

On October 27th, Eastern Time, NXP Semiconductors announced its financial performance for the third quarter ending September 28 and provided guidance for the fourth quarter.

1) Key Financial Data:

Revenue: Third-quarter operating revenue was $3.17 billion, a year-on-year decrease of 2%, with analysts expecting $3.16 billion. NXP's guidance was $3.05 billion to $3.25 billion, down 6% year-on-year in the second quarter.

EPS: The third-quarter adjusted diluted earnings per share (EPS) under non-GAAP was $3.11, a year-on-year decrease of 10%, with analysts expecting $3.12. NXP's guidance was $2.89 to $3.30, down 15% year-on-year in the second quarter.

Operating Profit: The adjusted operating profit for the third quarter was $1.071 billion, a year-on-year decrease of 7%, with NXP's guidance of $998 million to $1.12 billion, down 13% year-on-year in the second quarter.

Gross Profit: The adjusted gross profit for the third quarter was $1.81 billion, a year-on-year decrease of 4%, with NXP's guidance of $1.72 billion to $1.87 billion. The adjusted gross margin was 57.0%, down 1.2 percentage points year-on-year, with NXP's guidance at 56.5%. In the second quarter, gross profit decreased 10% year-on-year, and the gross margin fell 2.1 percentage points to 56.5%.

2) Performance Guidance:

Revenue: Expected fourth-quarter revenue is $3.2 billion to $3.4 billion, with analysts expecting $3.23 billion.

EPS: Expected fourth-quarter adjusted EPS is $3.07 to $3.49.

Operating Profit: Expected fourth-quarter adjusted operating profit is $1.077 billion to $1.205 billion.

Gross Profit: Expected fourth-quarter adjusted gross profit is $1.824 billion to $1.972 billion, with an adjusted gross margin of 57.0% to 58.0%.

Third Quarter Revenue Exceeds Expectations, Year-on-Year Decline Only One-Third of Second Quarter

The earnings report shows that NXP Semiconductors' revenue in the third quarter continued to decline, but the year-on-year decrease was only 2%, just one-third of the decline in the second quarter. The revenue for the third quarter was also slightly higher than analysts' expectations and the midpoint of NXP's own guidance range, indicating that the narrowing of revenue decline was greater than analysts had anticipated.

NXP's EPS earnings in the third quarter were slightly below analysts' expectations, but the year-on-year decline of 10% was also narrower than the 15% decline in the second quarter. Similar to revenue, the decline has slowed down quarter by quarter entering 2025, with all three quarters showing a decrease In the third quarter, NXP Semiconductors' operating profit and gross profit both exceeded the median of the company's own guidance range, and the decline compared to the second quarter narrowed.

Rafael Sotomayor, the president of NXP who is about to take over as CEO, pointed out during the earnings announcement that the company experienced broad sequential growth across all regions and end markets in the third quarter.

The financial report shows that automotive chips contributed nearly 60% of NXP's revenue in the third quarter. This business halted a five-quarter consecutive year-on-year decline in the second quarter, with revenue in the third quarter slightly above the level a year ago, resulting in approximately zero year-on-year growth. However, the sequential performance was better than in the second quarter.

In the third quarter, automotive chip revenue grew 6% sequentially, doubling the growth rate of the second quarter. Other businesses also recorded sequential growth.

NXP's second-largest business, Industrial and Internet of Things (IoT), saw a 6% sequential revenue increase in the third quarter, while mobile business revenue grew 30% sequentially. In the second quarter, these two segments had sequential growth of 7% and a decline of 2%, respectively. In the third quarter, the revenues of these two segments grew year-on-year by 3% and 6%, reversing the year-on-year declines of 11% and 4% in the second quarter.

Fourth Quarter Expected to Achieve Positive Revenue Growth for the First Time in Over a Year, Analysts Expect at the Low End of Guidance

In terms of guidance, NXP's entire fourth-quarter revenue guidance range is above the same period last year. This means that NXP's fourth-quarter revenue will achieve its first year-on-year positive growth since the first quarter of last year.

Moreover, the median of NXP's revenue guidance is $3.3 billion, which corresponds to a year-on-year growth of 6.1%, stronger than analysts' expected growth. Analysts' expected revenue is at the low end of NXP's guidance range, equivalent to an expected year-on-year growth of nearly 3.9%.

NXP President Sotomayor stated that the guidance reflects the strong specific growth momentum of the company and signs of cyclical recovery. The company will continue to focus on rigorous investment and portfolio enhancement to drive profit growth while maintaining control over factors that can influence the company.

Some commentators noted that due to geopolitical uncertainties, companies are delaying expenditures, and global trade tensions are putting pressure on NXP's sales. Additionally, after the outbreak of the COVID-19 pandemic, automotive manufacturers and other NXP customers hoarded chips, leading to a longer-than-expected period of oversupply, resulting in demand weakness due to inventory surplus. NXP's latest guidance indicates that the company is navigating this difficult period better than expected.

NXP's CEO Sievers stated last quarter that the oversupply of automotive chips may finally end this year and noted that NXP's automotive business is experiencing "significant" acceleration