NXP Semiconductors N.V. — Q1 2023 Form 10-Q
Reporting period: Three months ended April 2, 2023; compared with the three months ended April 3, 2022. Amounts are in U.S. dollars unless stated otherwise.
Business context and results
Revenue was broadly flat year over year as automotive growth was offset by weaker Industrial & IoT and Mobile demand. Management attributed the overall revenue change to lower shipment volumes, partly offset by higher average selling prices, including supplier cost pass-throughs.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $3.121 billion | $3.136 billion | Down 0.5% |
| Gross profit / margin | $1.770 billion / 56.7% | $1.777 billion / 56.7% | Profit down $7 million; margin flat |
| Operating income | $825 million | $873 million | Down $48 million |
| Net income attributable to stockholders | $615 million | $657 million | Down $42 million |
| Diluted EPS | $2.35 | $2.48 | Down $0.13 |
| Cash from operations | $632 million | $856 million | Down $224 million |
| Capital expenditures | $251 million | $280 million | Down $29 million |
Revenue mix and material changes
- Automotive: $1.828 billion, up 17.4%, supported by automotive processing, advanced analog, application processors and radar, including demand associated with electrification and driver-assistance systems.
- Industrial & IoT: $504 million, down 26.1%, with lower demand across the product portfolio.
- Mobile: $260 million, down 35.2%, primarily reflecting lower demand for secure embedded transaction solutions and certain analog and power products.
- Communication Infrastructure & Other: $529 million, up 6.7%; growth in network edge, RFID, transit and access solutions was partly offset by weaker demand in other product areas.
- Direct OEM/EMS sales rose 12.9% to $1.594 billion, while distributor sales fell 11.3% to $1.491 billion. China revenue declined 11.4%; EMEA and Americas revenue increased 13.6% and 10.0%, respectively.
Gross margin was unchanged as pricing increases offset higher foundry, subcontractor and other supplier costs. R&D expense increased 11.4% to $577 million and SG&A increased 11.6% to $280 million, reflecting higher personnel, restructuring and, for SG&A, legal costs. Acquisition-related amortization fell $50 million to $85 million as certain intangibles became fully amortized.
Cash, debt and liquidity
- Cash and cash equivalents were $3.930 billion at quarter-end, up $85 million from December 31, 2022. Cash from operations was $632 million; investing used $351 million and financing used $198 million. Inventory increased $196 million and receivables and other current assets increased $138 million, weighing on operating cash flow.
- Capital expenditures were $251 million. The company reported $230 million of cash returned to shareholders for the quarter; cash dividends paid were $219 million. A $1.014-per-share dividend declared during the quarter was paid April 5, 2023.
- Total debt, including unamortized items, was $11.167 billion; net debt was $7.237 billion. The $998 million current portion principally reflects the $1.0 billion 4.875% senior note due March 2024. The company reported $6.430 billion of available liquidity, including cash and a $2.5 billion revolving credit facility.
- Current assets were $7.357 billion and current liabilities were $4.213 billion. Management stated that available funding and anticipated operating cash generation should be adequate for operations, working capital, capital expenditures and potential dividends for at least the next 12 months.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management described demand as mixed across end markets and said it was increasing production to align inventory with expected demand.
- Q1 included $18 million of net restructuring charges, including personnel-related costs for a new program; restructuring liabilities totaled $34 million at quarter-end.
- Inventory was $1.977 billion, up from $1.782 billion at year-end, and included a $142 million obsolescence allowance. Supplier purchase commitments totaled $3.9 billion and extend through 2044.
- Legal accruals were $102 million, with $67 million of related insurance reimbursements recorded. The company estimated reasonably possible litigation losses above accruals of up to $106 million, before possible insurance recoveries of up to $70 million. It also described indemnity-related personal injury lawsuits involving Motorola; plaintiffs seek unspecified damages, and the company considers a recovery on the entire inventory of claims potentially material.
- The company reported no material changes to previously disclosed risk factors or market-risk exposure. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether automotive growth can continue to offset ongoing weakness in Industrial & IoT and Mobile, and how demand trends affect shipment volumes and pricing.
- Whether inventory growth and the related obsolescence allowance are consistent with customer demand and production plans.
- Upcoming debt maturity and refinancing or repayment plans, alongside the company’s cash generation, dividends and capital spending.
- Developments in litigation, potential losses beyond recorded accruals, and the timing and availability of insurance recoveries.
- Execution and costs of the new restructuring program, and the effect of supplier commitments on flexibility if demand changes.