Sterne Agee CRT: NXP (NXPI) is a Buying Opportunity, Pullback Shortlived
Douglas Freedman from Sterne Agee CRT published a note describing why the NXP (NASDAQ: NXPI) weakness is overblown. The analyst believes that accounting practices and a reliance on China rather than a fundamental break in the business model are to blame.
Management attributed the Q4 revenue outlook of mid-teens percentage sequential decline to a large-scale inventory adjustment at channel partners as a result of ongoing demand softness across multiple end markets. NXPI noted that, excluding such inventory impact, Q4 outlook reflecting customer demand would likely be down in the range of low- to mid-single-digits decline.
3 reasons the inventory reduction was greater than peers
1) the company's sell-in accounting vs. sell-through is later to detect demand declines
2) large exposure to China (~47% of sales)
3) previous constraint at RF PA supply led to customers' over-ordering such part, and with it, potentially other catalog parts with shorter lead time due to similar concerns
Two key segments were where the weakness lay:
Interface & Power segment was guided to decline almost 30% Q/Q on disappointing RF PA component orders due to the pause of China LTE base station rollout, consistent with FSL's commentary.
Weak after-market radio (automotive) sales, delay of mobile payment adoption at Chinese OEMs, and lumpy secure bank card demands in China and U.S., also contributed to the weak Q4 outlook.
He reduced his price target along with estimates but kept the multiple consistent. No change to Buy rating and the price target is now $107 (from $113).
For an analyst ratings summary and ratings history on NXP Semiconductors NV click here. For more ratings news on NXP Semiconductors NV click here.
Shares of NXP Semiconductors NV closed at $73.00 yesterday.